10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

FORM 10-Q

ý Quarterly Report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934

for the Quarterly Period Ended September 30, 2016.

o Transition report pursuant to Section 13 or 15 (d) of the Exchange Act

For the Transition Period from                    to                   .

No. 0-17077

(Commission File Number)

PENNS WOODS BANCORP, INC.

(Exact name of Registrant as specified in its charter) 

PENNSYLVANIA	23-2226454
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

300 Market Street, P.O. Box 967 Williamsport, Pennsylvania	17703-0967
(Address of principal executive offices)	(Zip Code)

(570) 322-1111

Registrant’s telephone number, including area code

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  YES ý NO o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  YES ý NO o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check one):

Large accelerated filer o	Accelerated filer x
Non-accelerated filer o	Small reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  YES o NO ý

On November 1, 2016 there were 4,734,310 shares of the Registrant’s common stock outstanding.

PENNS WOODS BANCORP, INC.

INDEX TO QUARTERLY REPORT ON FORM 10-Q

		Page
		Number
Part I	Financial Information
Item 1.	Financial Statements	3
Consolidated Balance Sheet (Unaudited) as of September 30, 2016 and December 31, 2015		3
Consolidated Statement of Income (Unaudited) for the Three and Nine Months Ended September 30, 2016 and 2015		4
Consolidated Statement of Comprehensive Income (Unaudited) for the Three and Nine Months Ended September 30, 2016 and 2015		5
Consolidated Statement of Changes in Shareholders’ Equity (Unaudited) for the Nine Months Ended September 30, 2016 and 2015		6
Consolidated Statement of Cash Flows (Unaudited) for the Nine Months Ended September 30, 2016 and 2015		7
Notes to Consolidated Financial Statements (Unaudited)		8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	30
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	44
Item 4.	Controls and Procedures	45
Part II	Other Information
Item 1.	Legal Proceedings	46
Item 1A.	Risk Factors	46
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	46
Item 3.	Defaults Upon Senior Securities	46
Item 4.	Mine Safety Disclosures	46
Item 5.	Other Information	46
Item 6.	Exhibits	47
Signatures		48
Exhibit Index and Exhibits		49

2

Part I.  FINANCIAL INFORMATION

Item 1.  Financial Statements

PENNS WOODS BANCORP, INC.

CONSOLIDATED BALANCE SHEET

(UNAUDITED)

	September 30,			December 31,
(In Thousands, Except Share Data)	2016			2015
ASSETS:
Noninterest-bearing balances	$	23,487		$	22,044
Interest-bearing balances in other financial institutions	36,694			752
Total cash and cash equivalents	60,181			22,796
Investment securities, available for sale, at fair value	141,057			176,157
Investment securities, trading	—			73
Loans held for sale	2,160			757
Loans	1,069,480			1,045,207
Allowance for loan losses	(12,718		)	(12,044		)
Loans, net	1,056,762			1,033,163
Premises and equipment, net	22,985			21,830
Accrued interest receivable	3,800			3,686
Bank-owned life insurance	27,176			26,667
Investment in limited partnerships	658			899
Goodwill	17,104			17,104
Intangibles	1,889			1,240
Deferred tax asset	7,404			8,990
Other assets	6,236			6,695
TOTAL ASSETS	$	1,347,412		$	1,320,057
LIABILITIES:
Interest-bearing deposits	$	792,698		$	751,797
Noninterest-bearing deposits	295,599			280,083
Total deposits	1,088,297			1,031,880
Short-term borrowings	11,579			46,638
Long-term borrowings	91,025			91,025
Accrued interest payable	481			426
Other liabilities	16,095			13,809
TOTAL LIABILITIES	1,207,477			1,183,778
SHAREHOLDERS’ EQUITY:
Preferred stock, no par value, 3,000,000 shares authorized; no shares issued	—			—
Common stock, par value $8.33, 15,000,000 shares authorized; 5,006,601 and 5,004,984 shares issued	41,721			41,708
Additional paid-in capital	50,050			49,992
Retained earnings	60,889			58,038
Accumulated other comprehensive loss:
Net unrealized gain on available for sale securities	1,489			258
Defined benefit plan	(3,980		)	(4,057		)
Treasury stock at cost, 272,452 and 257,852 shares	(10,234		)	(9,660		)
TOTAL SHAREHOLDERS’ EQUITY	139,935			136,279
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	1,347,412		$	1,320,057

See accompanying notes to the unaudited consolidated financial statements.

3

PENNS WOODS BANCORP, INC.

CONSOLIDATED STATEMENT OF INCOME

(UNAUDITED)

	Three Months Ended September 30,					Nine Months Ended September 30,
(In Thousands, Except Per Share Data)	2016		2015			2016		2015
INTEREST AND DIVIDEND INCOME:
Loans, including fees	$	10,541	$	9,862		$	31,362	$	28,937
Investment securities:
Taxable	601		829			1,825		2,728
Tax-exempt	329		676			1,203		2,187
Dividend and other interest income	189		156			666		597
TOTAL INTEREST AND DIVIDEND INCOME	11,660		11,523			35,056		34,449
INTEREST EXPENSE:
Deposits	909		800			2,624		2,328
Short-term borrowings	7		31			41		78
Long-term borrowings	497		458			1,481		1,476
TOTAL INTEREST EXPENSE	1,413		1,289			4,146		3,882
NET INTEREST INCOME	10,247		10,234			30,910		30,567
PROVISION FOR LOAN LOSSES	258		520			866		1,820
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES	9,989		9,714			30,044		28,747
NON-INTEREST INCOME:
Service charges	585		621			1,678		1,772
Net securities gains, available for sale	253		526			1,174		1,713
Net securities gains (losses), trading	8		(33		)	54		(37		)
Bank-owned life insurance	172		182			516		541
Gain on sale of loans	658		524			1,691		1,305
Insurance commissions	198		185			604		623
Brokerage commissions	290		297			817		836
Other	918		835			2,723		2,701
TOTAL NON-INTEREST INCOME	3,082		3,137			9,257		9,454
NON-INTEREST EXPENSE:
Salaries and employee benefits	4,507		4,302			13,433		13,073
Occupancy	544		529			1,630		1,721
Furniture and equipment	662		686			2,042		1,924
Pennsylvania shares tax	220		244			698		711
Amortization of investment in limited partnerships	46		165			266		496
Federal Deposit Insurance Corporation deposit insurance	202		209			670		654
Marketing	173		160			568		434
Intangible amortization	90		73			276		235
Other	2,295		2,162			6,882		6,171
TOTAL NON-INTEREST EXPENSE	8,739		8,530			26,465		25,419
INCOME BEFORE INCOME TAX PROVISION	4,332		4,321			12,836		12,782
INCOME TAX PROVISION	1,273		957			3,307		2,630
NET INCOME	$	3,059	$	3,364		$	9,529	$	10,152
EARNINGS PER SHARE - BASIC AND DILUTED	$	0.65	$	0.71		$	2.01	$	2.12
WEIGHTED AVERAGE SHARES OUTSTANDING - BASIC AND DILUTED	4,733,800		4,761,576			4,735,844		4,780,776
DIVIDENDS DECLARED PER SHARE	$	0.47	$	0.47		$	1.41	$	1.41

See accompanying notes to the unaudited consolidated financial statements.

4

PENNS WOODS BANCORP, INC.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

(UNAUDITED)

	Three Months Ended September 30,						Nine Months Ended September 30,
(In Thousands)	2016			2015			2016			2015
Net Income	$	3,059		$	3,364		$	9,529		$	10,152
Other comprehensive income (loss):
Change in unrealized gain (loss) on available for sale securities	(276		)	592			3,039			(579		)
Tax effect	94			(201		)	(1,032		)	198
Net realized gain on available for sale securities included in net income	(253		)	(526		)	(1,174		)	(1,713		)
Tax effect	86			179			398			582
Amortization of unrecognized pension and post-retirement items	39			39			117			119
Tax effect	(13		)	(13		)	(40		)	(40		)
Total other comprehensive income (loss)	(323		)	70			1,308			(1,433		)
Comprehensive income	$	2,736		$	3,434		$	10,837		$	8,719

See accompanying notes to the unaudited consolidated financial statements.

5

PENNS WOODS BANCORP, INC.

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY

(UNAUDITED)

	COMMON STOCK			ADDITIONAL PAID-IN CAPITAL		RETAINED EARNINGS			ACCUMULATED OTHER COMPREHENSIVE LOSS			TREASURY STOCK			TOTAL SHAREHOLDERS’ EQUITY
(In Thousands, Except Per Share Data)	SHARES	AMOUNT
Balance, December 31, 2014	5,002,649	$	41,688	$	49,896	$	53,107		$	(1,667	)	$	(7,057	)	$	135,967
Net income						10,152									10,152
Other comprehensive loss									(1,433		)				(1,433		)
Dividends declared, ($1.41 per share)						(6,736		)							(6,736		)
Common shares issued for employee stock purchase plan	1,723	14		63											77
Purchase of treasury stock (56,310 shares)												(2,450		)	(2,450		)
Balance, September 30, 2015	5,004,372	$	41,702	$	49,959	$	56,523		$	(3,100	)	$	(9,507	)	$	135,577

	COMMON STOCK			ADDITIONAL PAID-IN CAPITAL		RETAINED EARNINGS			ACCUMULATED OTHER COMPREHENSIVE LOSS (INCOME)			TREASURY STOCK			TOTAL SHAREHOLDERS’ EQUITY
(In Thousands, Except Per Share Data)	SHARES	AMOUNT
Balance, December 31, 2015	5,004,984	$	41,708	$	49,992	$	58,038		$	(3,799	)	$	(9,660	)	$	136,279
Net income						9,529									9,529
Other comprehensive income									1,308						1,308
Dividends declared, ($1.41 per share)						(6,678		)							(6,678		)
Common shares issued for employee stock purchase plan	1,617	13		58											71
Purchase of treasury stock (14,600 shares)												(574		)	(574		)
Balance, September 30, 2016	5,006,601	$	41,721	$	50,050	$	60,889		$	(2,491	)	$	(10,234	)	$	139,935

See accompanying notes to the unaudited consolidated financial statements.

6

PENNS WOODS BANCORP, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS

(UNAUDITED)

	Nine Months Ended September 30,
(In Thousands)	2016			2015
OPERATING ACTIVITIES:
Net Income	$	9,529		$	10,152
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	2,394			2,478
Amortization of intangible assets	276			235
Provision for loan losses	866			1,820
Accretion and amortization of investment security discounts and premiums	657			644
Net securities gains, available for sale	(1,174		)	(1,713		)
Originations of loans held for sale	(50,824		)	(41,762		)
Proceeds of loans held for sale	51,112			42,588
Gain on sale of loans	(1,691		)	(1,305		)
Net securities (gains) losses, trading	(54		)	37
Proceeds from the sale of trading securities	3,723			490
Purchases of trading securities	(3,596		)	(590		)
Earnings on bank-owned life insurance	(516		)	(541		)
Decrease in deferred tax asset	952			262
Other, net	508			(1,486		)
Net cash provided by operating activities	12,162			11,309
INVESTING ACTIVITIES:
Proceeds from sales of available for sale securities	42,180			43,051
Proceeds from calls and maturities of available for sale securities	19,267			14,832
Purchases of available for sale securities	(24,040		)	(26,916		)
Net increase in loans	(24,548		)	(87,324		)
Acquisition of premises and equipment	(2,347		)	(1,491		)
Proceeds from the sale of foreclosed assets	486			1,613
Purchase of bank-owned life insurance	(27		)	(30		)
Proceeds from redemption of regulatory stock	2,644			8,801
Purchases of regulatory stock	(2,569		)	(10,518		)
Net cash provided by (used for) investing activities	11,046			(57,982		)
FINANCING ACTIVITIES:
Net increase in interest-bearing deposits	40,901			18,912
Net increase in noninterest-bearing deposits	15,516			4,470
Proceeds from long-term borrowings	—			30,625
Repayment of long-term borrowings	—			(10,750		)
Net (decrease) increase in short-term borrowings	(35,059		)	10,872
Dividends paid	(6,678		)	(6,736		)
Issuance of common stock	71			77
Purchases of treasury stock	(574		)	(2,450		)
Net cash provided by provided by financing activities	14,177			45,020
NET INCREASE IN CASH AND CASH EQUIVALENTS	37,385			(1,653		)
CASH AND CASH EQUIVALENTS, BEGINNING	22,796			19,908
CASH AND CASH EQUIVALENTS, ENDING	$	60,181		$	18,255

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid	$	4,091	$	3,803
Income taxes paid	3,050		2,000
Transfer of loans to foreclosed real estate	83		340

See accompanying notes to the unaudited consolidated financial statements.

7

PENNS WOODS BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1.  Basis of Presentation

The consolidated financial statements include the accounts of Penns Woods Bancorp, Inc. (the “Company”) and its wholly-owned subsidiaries: Woods Investment Company, Inc., Woods Real Estate Development Company, Inc., Luzerne Bank, and Jersey Shore State Bank (Jersey Shore State Bank and Luzerne Bank are referred to together as the “Banks”) and Jersey Shore State Bank’s wholly-owned subsidiary, The M Group, Inc. D/B/A The Comprehensive Financial Group (“The M Group”).  All significant inter-company balances and transactions have been eliminated in the consolidation.

The interim financial statements are unaudited, but in the opinion of management reflect all adjustments necessary for the fair presentation of results for such periods.  The results of operations for any interim period are not necessarily indicative of results for the full year.  These financial statements should be read in conjunction with the financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015.

The accounting policies followed in the presentation of interim financial results are the same as those followed on an annual basis.  These policies are presented on pages 40 through 48 of the Form 10-K for the year ended December 31, 2015.

In reference to the attached financial statements, all adjustments are of a normal recurring nature pursuant to Rule 10-01(b) (8) of Regulation S-X.

Note 2.  Accumulated Other Comprehensive Loss

The changes in accumulated other comprehensive loss by component as of September 30, 2016 and 2015 were as follows:

	Three Months Ended September 30, 2016									Three Months Ended September 30, 2015
(In Thousands)	Net Unrealized Gain on Available for Sale Securities			Defined Benefit  Plan			Total			Net Unrealized Gain on Available for Sale Securities			Defined Benefit  Plan			Total
Beginning balance	$	1,838		$	(4,006	)	$	(2,168	)	$	1,374		$	(4,544	)	$	(3,170	)
Other comprehensive (loss) income before reclassifications	(182		)	—			$	(182	)	391			—			391
Amounts reclassified from accumulated other comprehensive (loss) income	(167		)	26			$	(141	)	(347		)	26			(321		)
Net current-period other comprehensive (loss) income	(349		)	26			$	(323	)	44			26			70
Ending balance	$	1,489		$	(3,980	)	$	(2,491	)	$	1,418		$	(4,518	)	$	(3,100	)

	Nine Months Ended September 30, 2016									Nine Months Ended September 30, 2015
(In Thousands)	Net Unrealized Gain on Available for Sale Securities			Defined Benefit  Plan			Total			Net Unrealized Gain (Los) on Available for Sale Securities			Defined Benefit  Plan			Total
Beginning balance	$	258		$	(4,057	)	$	(3,799	)	$	2,930		$	(4,597	)	$	(1,667	)
Other comprehensive income (loss) before reclassifications	2,007			—			2,007			(381		)	—			(381		)
Amounts reclassified from accumulated other comprehensive (loss) income	(776		)	77			(699		)	(1,131		)	79			(1,052		)
Net current-period other comprehensive income (loss)	1,231			77			1,308			(1,512		)	79			(1,433		)
Ending balance	$	1,489		$	(3,980	)	$	(2,491	)	$	1,418		$	(4,518	)	$	(3,100	)

8

The reclassifications out of accumulated other comprehensive loss as of September 30, 2016 and 2015 were as follows:

Details about Accumulated Other Comprehensive Loss Components	Amount Reclassified from Accumulated Other Comprehensive Loss						Affected Line Item  in the Consolidated  Statement of Income
	Three Months Ended September 30, 2016			Three Months Ended September 30, 2015
Net unrealized gain on available for sale securities	$	253		$	526		Net securities gains, available for sale
Income tax effect	(86		)	(179		)	Income tax provision
Total reclassifications for the period	$	167		$	347		Net of tax
Net unrecognized pension costs	$	(39	)	$	(39	)	Salaries and employee benefits
Income tax effect	13			13			Income tax provision
Total reclassifications for the period	$	(26	)	$	(26	)	Net of tax

Details about Accumulated Other Comprehensive Loss Components	Amount Reclassified from Accumulated Other Comprehensive Loss						Affected Line Item  in the Consolidated  Statement of Income
	Six Months Ended June 30, 2016			Nine Months Ended September 30, 2015
Net unrealized gain on available for sale securities	$	1,174		$	1,713		Net securities gains, available for sale
Income tax effect	(398		)	(582		)	Income tax provision
Total reclassifications for the period	$	776		$	1,131		Net of tax
Net unrecognized pension costs	$	(117	)	$	(119	)	Salaries and employee benefits
Income tax effect	40			40			Income tax provision
Total reclassifications for the period	$	(77	)	$	(79	)	Net of tax

Note 3.  Recent Accounting Pronouncements

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (a new revenue recognition standard). The core principle of the update is that a company will recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, this update specifies the accounting for certain costs to obtain or fulfill a contract with a customer and expands disclosure requirements for revenue recognition. This update is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. The Company is currently evaluating the impact the adoption of the standard will have on the Company's financial position or results of operation.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. This update applies to all entities that hold financial assets or owe financial liabilities and is intended to provide more useful information on the recognition, measurement, presentation, and disclosure of financial instruments. Among other things, this update (a) requires equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income; (b) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; (c) eliminates the requirement to disclose the fair value of financial instruments measured at amortized cost for entities that are not public business entities; (d) eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; (e) requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; (f) requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments; (g) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements; and (h) clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. For public business entities, the amendments in this update are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. For all other entities including not-for-profit entities and employee benefit plans within the scope of Topics 960 through 965 on plan accounting, the amendments in this update are effective for fiscal years beginning after December 15, 2018, and interim

9

periods within fiscal years beginning after December 15, 2019. All entities that are not public business entities may adopt the amendments in this update earlier as of the fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The standard requires lessees to recognize the assets and liabilities that arise from leases on the balance sheet.  A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term.  A short-term lease is defined as one in which: (a) the lease term is 12 months or less, and (b) there is not an option to purchase the underlying asset that the lessee is reasonably certain to exercise. For short-term leases, lessees may elect to recognize lease payments over the lease term on a straight-line basis. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2018, and interim periods within those years. For all other entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2019, and for interim periods within fiscal years beginning after December 15, 2020. The amendments should be applied at the beginning of the earliest period presented using a modified retrospective approach with earlier application permitted as of the beginning of an interim or annual reporting period. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

In March 2016, the FASB issued ASU 2016-04, Liabilities - Extinguishments of Liabilities (Subtopic 405-20). The standard provides that liabilities related to the sale of prepaid stored-value products within the scope of this Update are financial liabilities. The amendments in the Update provide a narrow scope exception to the guidance in Subtopic 405-20 to require that breakage for those liabilities be accounted for consistent with the breakage guidance in Topic 606. The amendments in this update are effective for public business entities, certain not-for-profit entities, and certain employee benefit plans for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. For all other entities, the amendments are effective for financial statements issued for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. Earlier application is permitted, including adoption in an interim period. This update is not expected to have a significant impact on the Company’s financial statements.

In March 2016, the FASB issued ASU 2016-05, Derivatives and Hedging (Topic 815). The amendments in this update apply to all reporting entities for which there is a change in the counterparty to a derivative instrument that has been designated as a heading instrument under Topic 815. The standards in this update clarify that a change in the counterparty to a derivative instrument that has been designated as the hedging instrument under Topic 815does not, in and of itself, require designation of that hedging relationship provided that all other hedge accounting criteria continue to be met. For public business entities, the amendments in this update are effective for financial statements issued for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. For all other entities, the amendments in this update are effective for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within fiscal years beginning after December 15, 2018. An entity has an option to apply the amendments in this update on either a prospective basis or a modified retrospective basis. Early adoption is permitted, including adoption in an interim period. This update is not expected to have a significant impact on the Company’s financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which changes the impairment model for most financial assets. This ASU is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. The underlying premise of the ASU is that financial assets measured at amortized cost should be presented at the net amount expected to be collected, through an allowance for credit losses that is deducted from the amortized cost basis. The allowance for credit losses should reflect management’s current estimate of credit losses that are expected to occur over the remaining life of a financial asset. The income statement will be effected for the measurement of credit losses for newly recognized financial assets, as well as the expected increases or decreases of expected credit losses that have taken place during the period. ASU 2016-13 is effective for annual and interim periods beginning after December 15, 2019, and early adoption is permitted for annual and interim periods beginning after December 15, 2018. With certain exceptions, transition to the new requirements will be through a cumulative effect adjustment to opening retained earnings as of the beginning of the first reporting period in which the guidance is adopted. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”), which addresses eight specific cash flow issues with the objective of reducing diversity in practice. Among these include recognizing cash payments for debt prepayment or debt extinguishment as cash outflows for financing activities; cash proceeds received from the settlement of insurance claims should be classified on the basis of the related insurance coverage; and cash proceeds received from the settlement of bank-owned life insurance policies should be classified as cash inflows from investing activities while the cash payments for premiums on bank-owned policies may be classified as cash

10

outflows for investing activities, operating activities, or a combination of investing and operating activities. The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity that elects early adoption must adopt all of the amendments in the same period. The amendments in this Update should be applied using a retrospective transition method to each period presented. If it is impracticable to apply the amendments retrospectively for some of the issues, the amendments for those issues would be applied prospectively as of the earliest date practicable. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s statement of cash flows.

Note 4. Per Share Data

There are no convertible securities which would affect the denominator in calculating basic and dilutive earnings per share.  There are 31,000 stock options outstanding, however, since the strike price of $42.03 is greater than the average closing market price the options are not included in the denominator when calculating basic and dilutive earnings per share. Net income as presented on the consolidated statement of income will be used as the numerator.  The following table sets forth the composition of the weighted average common shares (denominator) used in the basic and dilutive earnings per share computation.

	Three Months Ended September 30,				Nine Months Ended September 30,
	2016		2015		2016		2015
Weighted average common shares issued	5,006,252		5,003,979		5,005,707		5,003,396
Weighted average treasury stock shares	(272,452	)	(242,403	)	(269,863	)	(222,620	)
Weighted average common shares and common stock equivalents used to calculate basic and diluted earnings per share	4,733,800		4,761,576		4,735,844		4,780,776

Note 5. Investment Securities

The amortized cost and fair values of investment securities available for sale at September 30, 2016 and December 31, 2015 are as follows:

	September 30, 2016
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
(In Thousands)	Cost		Gains		Losses			Value
Available for sale (AFS)
U.S. Government and agency securities	$	—	$	—	$	—		$	—
Mortgage-backed securities	10,079		242		(62		)	10,259
Asset-backed securities	1,543		—		(5		)	1,538
State and political securities	60,838		1,807		(3		)	62,642
Other debt securities	54,752		689		(1,228		)	54,213
Total debt securities	127,212		2,738		(1,298		)	128,652
Financial institution equity securities	9,822		951		—			10,773
Other equity securities	1,767		13		(148		)	1,632
Total equity securities	11,589		964		(148		)	12,405
Total investment securities AFS	$	138,801	$	3,702	$	(1,446	)	$	141,057

11

	December 31, 2015
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
(In Thousands)	Cost		Gains		Losses			Value
Available for sale (AFS)
U.S. Government and agency securities	$	3,586	$	—	$	(37	)	$	3,549
Mortgage-backed securities	9,785		284		(60		)	10,009
Asset-backed securities	1,960		—		(20		)	1,940
State and political securities	84,992		1,797		(234		)	86,555
Other debt securities	59,832		185		(2,245		)	57,772
Total debt securities	160,155		2,266		(2,596		)	159,825
Financial institution equity securities	10,397		1,100		(14		)	11,483
Other equity securities	5,214		70		(435		)	4,849
Total equity securities	15,611		1,170		(449		)	16,332
Total investment securities AFS	$	175,766	$	3,436	$	(3,045	)	$	176,157

The amortized cost and fair values of trading investment securities at September 30, 2016 and December 31, 2015 are as follows.

	September 30, 2016
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
(In Thousands)	Cost		Gains		Losses		Value
Trading
Financial institution equity securities	$	—	$	—	$	—	$	—
Total trading securities	$	—	$	—	$	—	$	—

	December 31, 2015
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
(In Thousands)	Cost		Gains		Losses			Value
Trading
Financial institution equity securities	$	78	$	—	$	(5	)	$	73
Total trading securities	$	78	$	—	$	(5	)	$	73

Total net realized trading gains of $8,000 and $54,000 for the three and nine month periods ended September 30, 2016 compared to the net realized trading loss of $33,000 and $37,000 for the three and nine month periods ended September 30, 2015 were included in the Consolidated Statement of Income.

The following tables show the Company’s gross unrealized losses and fair value, aggregated by investment category and length of time, that the individual securities have been in a continuous unrealized loss position, at September 30, 2016 and December 31, 2015.

12

	September 30, 2016
	Less than Twelve Months					Twelve Months or Greater					Total
			Gross					Gross					Gross
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
(In Thousands)	Value		Losses			Value		Losses			Value		Losses
Available for sale (AFS)
U.S. Government and agency securities	$	—	$	—		$	—	$	—		$	—	$	—
Mortgage-backed securities	—		—			3,653		(62		)	3,653		(62		)
Asset-backed securities	—		—			1,538		(5		)	1,538		(5		)
State and political securities	1,001		(3		)	—		—			1,001		(3		)
Other debt securities	11,753		(271		)	12,187		(957		)	23,940		(1,228		)
Total debt securities	12,754		(274		)	17,378		(1,024		)	30,132		(1,298		)
Financial institution equity securities	—		—			—		—			—		—
Other equity securities	780		(20		)	238		(128		)	1,018		(148		)
Total equity securities	780		(20		)	238		(128		)	1,018		(148		)
Total investment securities AFS	$	13,534	$	(294	)	$	17,616	$	(1,152	)	$	31,150	$	(1,446	)

	December 31, 2015
	Less than Twelve Months					Twelve Months or Greater					Total
			Gross					Gross					Gross
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
(In Thousands)	Value		Losses			Value		Losses			Value		Losses
Available for sale (AFS)
U.S. Government and agency securities	$	—	$	—		$	3,549	$	(37	)	$	3,549	$	(37	)
Mortgage-backed securities	6,081		(60		)	—		—			6,081		(60		)
Asset-backed securities	1,626		(16		)	314		(4		)	1,940		(20		)
State and political securities	7,345		(47		)	1,656		(187		)	9,001		(234		)
Other debt securities	24,381		(530		)	22,547		(1,715		)	46,928		(2,245		)
Total debt securities	39,433		(653		)	28,066		(1,943		)	67,499		(2,596		)
Financial institution equity securities	—		—			53		(14		)	53		(14		)
Other equity securities	2,363		(277		)	1,001		(158		)	3,364		(435		)
Total equity securities	2,363		(277		)	1,054		(172		)	3,417		(449		)
Total investment securities AFS	$	41,796	$	(930	)	$	29,120	$	(2,115	)	$	70,916	$	(3,045	)

At September 30, 2016 there were a total of 13 securities in a continuous unrealized loss position for less than twelve months and 11 individual securities that were in a continuous unrealized loss position for twelve months or greater.

The Company reviews its position quarterly and has determined that, at September 30, 2016, the declines outlined in the above table represent temporary declines and the Company does not intend to sell and does not believe it will be required to sell these securities before recovery of their cost basis, which may be at maturity.  The Company has concluded that the unrealized losses disclosed above are not other than temporary but are the result of interest rate changes, sector credit ratings changes, or company-specific ratings changes that are not expected to result in the non-collection of principal and interest during the period.

The amortized cost and fair value of debt securities at September 30, 2016, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities since borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

13

(In Thousands)	Amortized Cost		Fair Value
Due in one year or less	$	1,354	$	1,354
Due after one year to five years	36,382		36,887
Due after five years to ten years	67,710		67,992
Due after ten years	21,766		22,419
Total	$	127,212	$	128,652

Total gross proceeds from sales of securities available for sale were $42,180,000 and $43,051,000 for the nine months ended September 30, 2016 and 2015, respectively. 

The following table represents gross realized gains and losses within the available for sale portfolio:

	Three Months Ended September 30,				Nine Months Ended September 30,
(In Thousands)	2016		2015		2016		2015
Gross realized gains:
U.S. Government and agency securities	$	11	$	—	$	11	$	—
Mortgage-backed securities	29		—		35		—
State and political securities	146		511		784		1,257
Other debt securities	—		14		258		273
Financial institution equity securities	68		1		150		163
Other equity securities	73		—		217		132
Total gross realized gains	$	327	$	526	$	1,455	$	1,825
Gross realized losses:
U.S. Government and agency securities	$	2	$	—	$	5	$	—
Mortgage-backed securities	—		—		—		—
Asset-backed securities	—		—		—		—
State and political securities	1		—		1		22
Other debt securities	26		—		189		47
Financial institution equity securities	—		—		—		—
Other equity securities	45		—		86		43
Total gross realized losses	$	74	$	—	$	281	$	112

The following table represents gross realized gains and losses within the trading portfolios:

	Three Months Ended September 30,				Nine Months Ended September 30,
(In Thousands)	2016		2015		2016		2015
Gross realized gains:
Financial institution equity securities	—		—		$	6	$	2
Other equity securities	8		2		76		3
Total gross realized gains	$	8	$	2	$	82	$	5
Gross realized losses:
Financial institution equity securities	—		12		$	12	$	15
Other equity securities	—		23		16		27
Total gross realized losses	$	—	$	35	$	28	$	42

There were no impairment charges included in gross realized losses for the three and nine months ended September 30, 2016 and 2015, respectively.

14

Investment securities with a carrying value of approximately $102,872,000 and $131,089,000 at September 30, 2016 and December 31, 2015, respectively, were pledged to secure certain deposits, repurchase agreements, and for other purposes as required by law.

Note 6.Loans

Management segments the Banks' loan portfolio to a level that enables risk and performance monitoring according to similar risk characteristics.  Loans are segmented based on the underlying collateral characteristics.  Categories include commercial, financial, and agricultural, real estate, and installment loans to individuals.  Real estate loans are further segmented into three categories: residential, commercial, and construction.

The following table presents the related aging categories of loans, by segment, as of September 30, 2016 and December 31, 2015:

	September 30, 2016
				Past Due		Past Due 90
				30 To 89		Days Or More		Non-
(In Thousands)	Current			Days		& Still Accruing		Accrual		Total
Commercial, financial, and agricultural	$	155,157		$	233	$	—	$	137	$	155,527
Real estate mortgage:
Residential	551,143			2,752		114		2,603		556,612
Commercial	289,926			987		—		8,676		299,589
Construction	26,927			2		—		—		26,929
Installment loans to individuals	31,648			552		—		—		32,200
	1,054,801			$	4,526	$	114	$	11,416	1,070,857
Net deferred loan fees and discounts	(1,377		)							(1,377		)
Allowance for loan losses	(12,718		)							(12,718		)
Loans, net	$	1,040,706								$	1,056,762

	December 31, 2015
				Past Due		Past Due 90
				30 To 89		Days Or More		Non-
(In Thousands)	Current			Days		& Still Accruing		Accrual		Total
Commercial, financial, and agricultural	$	162,312		$	164	$	—	$	1,596	$	164,072
Real estate mortgage:
Residential	517,753			6,827		714		889		526,183
Commercial	295,784			720		265		5,770		302,539
Construction	26,545			67		—		212		26,824
Installment loans to individuals	26,572			429		—		—		27,001
	1,028,966			$	8,207	$	979	$	8,467	1,046,619
Net deferred loan fees and discounts	(1,412		)							(1,412		)
Allowance for loan losses	(12,044		)							(12,044		)
Loans, net	$	1,015,510								$	1,033,163

Purchased loans acquired are recorded at fair value on their purchase date without a carryover of the related allowance for loan losses.

Upon the acquisition of Luzerne Bank on June 1, 2013, the Company evaluated whether each acquired loan (regardless of size) was within the scope of ASC 310-30, Receivables-Loans and Debt Securities Acquired with Deteriorated Credit Quality.  Purchased credit-impaired loans are loans that have evidence of credit deterioration since origination and it is probable at the date of acquisition

15

that the Company will not collect all contractually required principal and interest payments. There were no material increases or decreases in the expected cash flows of these loans between June 1, 2013 (the “acquisition date”) and September 30, 2016.  The fair value of purchased credit-impaired loans, on the acquisition date, was determined, primarily based on the fair value of loan collateral.  The carrying value of purchased loans acquired with deteriorated credit quality was $329,000 at September 30, 2016.

On the acquisition date, the preliminary estimate of the unpaid principal balance for all loans evidencing credit impairment acquired in the Luzerne Bank acquisition was $1,211,000 and the estimated fair value of the loans was $878,000. Total contractually required payments on these loans, including interest, at the acquisition date was $1,783,000. However, the Company’s preliminary estimate of expected cash flows was $941,000. At such date, the Company established a credit risk related non-accretable discount (a discount representing amounts which are not expected to be collected from either the customer or liquidation of collateral) of $842,000 relating to these impaired loans, reflected in the recorded net fair value. Such amount is reflected as a non-accretable fair value adjustment to loans. The Company further estimated the timing and amount of expected cash flows in excess of the estimated fair value and established an accretable discount of $63,000 on the acquisition date relating to these impaired loans.

The following table presents additional information regarding loans acquired in the Luzerne Bank transaction with specific evidence of deterioration in credit quality:

(In Thousands)	September 30, 2016		December 31, 2015
Outstanding balance	$	429	$	441
Carrying amount	329		341

There were no material increases or decreases in the expected cash flows of these loans between June 1, 2013 (the “acquisition date”) and September 30, 2016. There has been no allowance for loan losses recorded for acquired loans with specific evidence of deterioration in credit quality as of September 30, 2016.

The following table presents interest income the Banks would have recorded if interest had been recorded based on the original loan agreement terms and rate of interest for non-accrual loans and interest income recognized on a cash basis for non-accrual loans for the three and nine months ended September 30, 2016 and 2015:

	Three Months Ended September 30,
	2016				2015
(In Thousands)	Interest Income That Would Have Been Recorded Based on Original Term and Rate		Interest Income Recorded on a Cash Basis		Interest Income That Would Have Been Recorded Based on Original Term and Rate		Interest Income Recorded on a Cash Basis
Commercial, financial, and agricultural	$	1	$	—	$	3	$	—
Real estate mortgage:
Residential	57		68		12		8
Commercial	109		90		77		12
Construction	—		—		15		17
	$	167	$	158	$	107	$	37

	Nine Months Ended September 30,
	2016				2015
(In Thousands)	Interest Income That Would Have Been Recorded Based on Original Term and Rate		Interest Income Recorded on a Cash Basis		Interest Income That Would Have Been Recorded Based on Original Term and Rate		Interest Income Recorded on a Cash Basis
Commercial, financial, and agricultural	$	5	$	1	$	17	$	8
Real estate mortgage:
Residential	113		95		33		27
Commercial	388		170		248		47
Construction	—				45		53
	$	506	$	266	$	343	$	135

16

Impaired Loans

Impaired loans are loans for which it is probable the Banks will not be able to collect all amounts due according to the contractual terms of the loan agreement.  The Banks evaluate such loans for impairment individually and does not aggregate loans by major risk classifications.  The definition of “impaired loans” is not the same as the definition of “non-accrual loans,” although the two categories overlap.  The Banks may choose to place a loan on non-accrual status due to payment delinquency or uncertain collectability, while not classifying the loan as impaired. Factors considered by management in determining impairment include payment status and collateral value.  The amount of impairment for these types of loans is determined by the difference between the present value of the expected cash flows related to the loan, using the original interest rate, and its recorded value, or as a practical expedient in the case of collateralized loans, the difference between the fair value of the collateral and the recorded amount of the loan.  When foreclosure is probable, impairment is measured based on the fair value of the collateral.

Management evaluates individual loans in all of the commercial segments for possible impairment if the loan is greater than $100,000 and if the loan is either on non-accrual status or has a risk rating of substandard.  Management may also elect to measure an individual loan for impairment if less than $100,000 on a case-by-case basis.

Mortgage loans on one-to-four family properties and all consumer loans are large groups of smaller-balance homogeneous loans and are measured for impairment collectively. Loans that experience insignificant payment delays, which are defined as 90 days or less, generally are not classified as impaired.  Management determines the significance of payment delays on a case-by-case basis taking into consideration all circumstances surrounding the loan and the borrower including the length of the delay, the borrower’s prior payment record, and the amount of shortfall in relation to the principal and interest owed.  Interest income for impaired loans is recorded consistent with the Banks' policy on non-accrual loans.

The following table presents the recorded investment, unpaid principal balance, and related allowance of impaired loans by segment as of September 30, 2016 and December 31, 2015:

	September 30, 2016
	Recorded		Unpaid Principal		Related
(In Thousands)	Investment		Balance		Allowance
With no related allowance recorded:
Commercial, financial, and agricultural	$	126	$	126	$	—
Real estate mortgage:
Residential	1,789		1,789		—
Commercial	1,920		1,970		—
	3,835		3,885		—
With an allowance recorded:
Commercial, financial, and agricultural	137		137		74
Real estate mortgage:
Residential	2,666		2,766		530
Commercial	10,414		10,414		2,018
	13,217		13,317		2,622
Total:
Commercial, financial, and agricultural	263		263		74
Real estate mortgage:
Residential	4,455		4,555		530
Commercial	12,334		12,384		2,018
	$	17,052	$	17,202	$	2,622

17

	December 31, 2015
	Recorded		Unpaid Principal		Related
(In Thousands)	Investment		Balance		Allowance
With no related allowance recorded:
Commercial, financial, and agricultural	$	319	$	319	$	—
Real estate mortgage:
Residential	1,142		1,142		—
Commercial	1,735		1,785		—
Construction	212		212		—
	3,408		3,458		—
With an allowance recorded:
Commercial, financial, and agricultural	150		150		75
Real estate mortgage:
Residential	1,573		1,703		376
Commercial	10,752		10,752		1,653
Construction	—		—		—
	12,475		12,605		2,104
Total:
Commercial, financial, and agricultural	469		469		75
Real estate mortgage:
Residential	2,715		2,845		376
Commercial	12,487		12,537		1,653
Construction	212		212		—
	$	15,883	$	16,063	$	2,104

The following table presents the average recorded investment in impaired loans and related interest income recognized for the three and nine months ended for September 30, 2016 and 2015:

	Three Months Ended September 30,
	2016						2015
(In Thousands)	Average Investment in Impaired Loans		Interest Income Recognized on an Accrual Basis on Impaired Loans		Interest Income Recognized on a Cash Basis on Impaired Loans		Average Investment in Impaired Loans		Interest Income Recognized on an Accrual Basis on Impaired Loans		Interest Income Recognized on a Cash Basis on Impaired Loans
Commercial, financial, and agricultural	$	346	$	4	$	—	$	699	$	5	$	—
Real estate mortgage:
Residential	2,784		23		41		2,245		17		14
Commercial	12,383		83		16		14,210		90		35
Construction	67		—				906		—		17
	$	15,580	$	110	$	57	$	18,060	$	112	$	66

	Nine Months Ended September 30,
	2016						2015
(In Thousands)	Average Investment in Impaired Loans		Interest Income Recognized on an Accrual Basis on Impaired Loans		Interest Income Recognized on a Cash Basis on Impaired Loans		Average Investment in Impaired Loans		Interest Income Recognized on an Accrual Basis on Impaired Loans		Interest Income Recognized on a Cash Basis on Impaired Loans
Commercial, financial, and agricultural	$	586	$	12	$	1	$	924	$	15	$	10
Real estate mortgage:
Residential	4,539		67		68		1,954		45		31
Commercial	16,988		247		96		14,492		238		71
Construction	208		—				812		—		53
	$	22,321	$	326	$	165	$	18,182	$	298	$	165

18

Currently, there is $24,000 committed to be advanced in connection with impaired loans.

Troubled Debt Restructurings

The loan portfolio also includes certain loans that have been modified in a Troubled Debt Restructuring (“TDR”), where economic concessions have been granted to borrowers who have experienced or are expected to experience financial difficulties.  These concessions typically result from loss mitigation activities and could include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance, or other actions.  Certain TDRs are classified as nonperforming at the time of restructure and may only be returned to performing status after considering the borrower’s sustained repayment performance for a reasonable period, generally six months.

There were two loan modifications that were considered TDRs completed during the three months ended September 30, 2016. Loan modifications that are considered TDRs completed during the three and nine months ended September 30, 2016 and 2015 and were as follows:

	Three Months Ended September 30,
	2016					2015
(In Thousands, Except Number of Contracts)	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Commercial, financial, and agricultural	—	$	—	$	—	2	$	116	$	116
Real estate mortgage:
Residential	2	580		580		6	641		641
Commercial	—	—		—		4	496		496
Construction	—	—		—		—	—		—
	2	$	580	$	580	12	$	1,253	$	1,253

	Nine Months Ended September 30,
	2016					2015
(In Thousands, Except Number of Contracts)	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Commercial, financial, and agricultural	—	$	—	$	—	4	$	213	$	213
Real estate mortgage:
Residential	4	922		922		12	963		963
Commercial	1	838		838		6	1,013		1,013
Construction	—	—		—		1	398		398
	5	$	1,760	$	1,760	23	$	2,587	$	2,587

There were five loan modifications considered to be TDRs made during the twelve months previous to September 30, 2016 that defaulted during the nine months ended September 30, 2016.  The defaulted loan types and recorded investments at March 31, 2016 are as follows: one commercial loan with a recorded investment of $103,000, one commercial real estate loan with a recorded investment of $239,000, and three residential real estate loan with a recorded investment of $173,000. There was one loan modifications considered TDRs made during the twelve months previous to September 30, 2015 that defaulted during the nine months endedSeptember 30, 2015. The loan that defaulted is a commercial real estate loans with a recorded investment of $48,000 at September 30, 2015.

Troubled debt restructurings amounted to $9,219,000 and $9,647,000 as of September 30, 2016 and December 31, 2015.

The amount of foreclosed residential real estate held at September 30, 2016 and December 31, 2015, totaled $0 and $102,000, respectively. Consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings are in process at September 30, 2016 and December 31, 2015, totaled $872,000 and $448,000, respectively.

19

Internal Risk Ratings

Management uses a ten point internal risk rating system to monitor the credit quality of the overall loan portfolio. The first six categories are considered not criticized, and are aggregated as “Pass” rated. The criticized rating categories utilized by management generally follow bank regulatory definitions. The special mention category includes assets that are currently protected but are potentially weak, resulting in an undue and unwarranted credit risk, but not to the point of justifying a substandard classification. Loans in the substandard category have well-defined weaknesses that jeopardize the liquidation of the debt, and have a distinct possibility that some loss will be sustained if the weaknesses are not corrected. All loans greater than 90 days past due are evaluated for substandard classification.  Loans in the doubtful category exhibit the same weaknesses found in the substandard loans, however, the weaknesses are more pronounced.  Such loans are static and collection in full is improbable.  However, these loans are not yet rated as loss because certain events may occur which would salvage the debt.  Loans classified loss are considered uncollectible and charge-off is imminent.

To help ensure that risk ratings are accurate and reflect the present and future capacity of borrowers to repay a loan as agreed, the Banks have a structured loan rating process with several layers of internal and external oversight.  Generally, consumer and residential mortgage loans are included in the pass category unless a specific action, such as bankruptcy, repossession, or death occurs to raise awareness of a possible credit event.  An external annual loan review of large commercial relationships is performed, as well as a sample of smaller transactions. Confirmation of the appropriate risk category is included in the review. Detailed reviews, including plans for resolution, are performed on loans classified as substandard, doubtful, or loss on a quarterly basis.

The following table presents the credit quality categories identified above as of September 30, 2016 and December 31, 2015:

	September 30, 2016
	Commercial, Financial, and Agricultural		Real Estate Mortgages						Installment Loans to Individuals
(In Thousands)			Residential		Commercial		Construction				Totals
Pass	$	152,425	$	553,115	$	277,903	$	26,929	$	32,200	$	1,042,572
Special Mention	2,739		587		6,063		—		—		9,389
Substandard	363		2,910		15,623		—		—		18,896
	$	155,527	$	556,612	$	299,589	$	26,929	$	32,200	$	1,070,857

	December 31, 2015
	Commercial, Financial, and Agricultural		Real Estate Mortgages						Installment Loans to Individuals
(In Thousands)			Residential		Commercial		Construction				Totals
Pass	$	160,734	$	522,853	$	277,248	$	26,612	$	27,001	$	1,014,448
Special Mention	1,669		823		8,625		—		—		11,117
Substandard	1,669		2,507		16,666		212		—		21,054
	$	164,072	$	526,183	$	302,539	$	26,824	$	27,001	$	1,046,619

Allowance for Loan Losses

An allowance for loan losses (“ALL”) is maintained to absorb losses from the loan portfolio.  The ALL is based on management’s continuing evaluation of the risk characteristics and credit quality of the loan portfolio, assessment of current economic conditions, diversification and size of the portfolio, adequacy of collateral, past and anticipated future loss experience, and the amount of non-performing loans.

The Banks' methodology for determining the ALL is based on the requirements of ASC Section 310-10-35 for loans individually evaluated for impairment (previously discussed) and ASC Subtopic 450-20 for loans collectively evaluated for impairment, as well as the Interagency Policy Statements on the Allowance for Loan and Lease Losses and other bank regulatory guidance.  The total of the two components represents the Banks' ALL.

Loans that are collectively evaluated for impairment are analyzed with general allowances being made as appropriate.  Allowances are segmented based on collateral characteristics previously disclosed, and consistent with credit quality monitoring.  Loans that are collectively evaluated for impairment are grouped into two classes for evaluation.  A general allowance is determined for “Pass” rated credits, while a separate pool allowance is provided for “Criticized” rated credits that are not individually evaluated for impairment.

20

For the general allowances, historical loss trends are used in the estimation of losses in the current portfolio.  These historical loss amounts are modified by other qualitative factors.  A historical charge-off factor is calculated utilizing a twelve quarter moving average.  However, management may adjust the moving average time frame by up to four quarters to adjust for variances in the economic cycle. Management has identified a number of additional qualitative factors which it uses to supplement the historical charge-off factor because these factors are likely to cause estimated credit losses associated with the existing loan pools to differ from historical loss experience.  The additional factors that are evaluated quarterly and updated using information obtained from internal, regulatory, and governmental sources are: national and local economic trends and conditions; levels of and trends in delinquency rates and non-accrual loans; trends in volumes and terms of loans; effects of changes in lending policies; experience, ability, and depth of lending staff; value of underlying collateral; and concentrations of credit from a loan type, industry and/or geographic standpoint.

Loans in the criticized pools, which possess certain qualities or characteristics that may lead to collection and loss issues, are closely monitored by management and subject to additional qualitative factors.  Management also monitors industry loss factors by loan segment for applicable adjustments to actual loss experience.

Management reviews the loan portfolio on a quarterly basis in order to make appropriate and timely adjustments to the ALL.  When information confirms all or part of specific loans to be uncollectible, these amounts are promptly charged off against the ALL.

Activity in the allowance is presented for the three and nine months ended September 30, 2016 and 2015:

	Three Months Ended September 30, 2016
	Commercial, Financial, and Agricultural			Real Estate Mortgages								Installment Loans to Individuals
(In Thousands)				Residential			Commercial		Construction						Unallocated		Totals
Beginning Balance	$	1,273		$	5,851		$	4,001	$	143		$	277		$	972	$	12,517
Charge-offs	(18		)	(4		)	—		—			(67		)	—		(89		)
Recoveries	4			8			3		1			16			—		32
Provision	(9		)	(550		)	642		(29		)	111			93		258
Ending Balance	$	1,250		$	5,305		$	4,646	$	115		$	337		$	1,065	$	12,718

	Three Months Ended September 30, 2015
	Commercial, Financial, and Agricultural			Real Estate Mortgages									Installment Loans to Individuals
(In Thousands)				Residential			Commercial			Construction						Unallocated		Totals
Beginning Balance	$	1,286		$	4,334		$	3,869		$	548		$	237		$	991	$	11,265
Charge-offs	—			(29		)	(294		)	—			(47		)	—		(370		)
Recoveries	23			32			—			3			16			—		74
Provision	(1		)	150			305			(187		)	39			214		520
Ending Balance	$	1,308		$	4,487		$	3,880		$	364		$	245		$	1,205	$	11,489

	Nine Months Ended September 30, 2016
	Commercial, Financial, and Agricultural			Real Estate Mortgages								Installment Loans to Individuals
(In Thousands)				Residential			Commercial		Construction						Unallocated		Totals
Beginning Balance	$	1,532		$	5,116		$	4,217	$	160		$	243		$	776	$	12,044
Charge-offs	(167		)	(11		)	—		—			(171		)	—		(349		)
Recoveries	56			14			8		6			73			—		157
Provision	(171		)	186			421		(51		)	192			289		866
Ending Balance	$	1,250		$	5,305		$	4,646	$	115		$	337		$	1,065	$	12,718

21

	Nine Months Ended September 30, 2015
	Commercial, Financial, and Agricultural			Real Estate Mortgages									Installment Loans to Individuals
(In Thousands)				Residential			Commercial			Construction						Unallocated		Totals
Beginning Balance	$	1,124		$	3,755		$	4,205		$	786		$	245		$	464	$	10,579
Charge-offs	(283		)	(30		)	(743		)	(46		)	(161		)	—		(1,263		)
Recoveries	51			69			169			19			45			—		353
Provision	416			693			249			(395		)	116			741		1,820
Ending Balance	$	1,308		$	4,487		$	3,880		$	364		$	245		$	1,205	$	11,489

The Company grants commercial, industrial, residential, and installment loans to customers primarily throughout north-east and central Pennsylvania. Although the Company has a diversified loan portfolio, a substantial portion of its debtors’ ability to honor their contracts is dependent on the economic conditions within this region.

The Company has a concentration of the following to gross loans at September 30, 2016 and 2015:

	September 30,
	2016		2015
Owners of residential rental properties	16.64	%	16.44	%
Owners of commercial rental properties	14.11	%	14.17	%

The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment based on impairment method as of September 30, 2016 and December 31, 2015:

	September 30, 2016
	Commercial, Financial, and Agricultural		Real Estate Mortgages						Installment Loans to Individuals		Unallocated
(In Thousands)			Residential		Commercial		Construction						Totals
Allowance for Loan Losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	74	$	530	$	2,018	$	—	$	—	$	—	$	2,622
Collectively evaluated for impairment	1,176		4,775		2,628		115		337		1,065		10,096
Total ending allowance balance	$	1,250	$	5,305	$	4,646	$	115	$	337	$	1,065	$	12,718
Loans:
Individually evaluated for impairment	$	263	$	4,126	$	12,334	$	—	$	—			$	16,723
Loans acquired with deteriorated credit quality	—		329		—		—		—				329
Collectively evaluated for impairment	155,264		552,157		287,255		26,929		32,200				1,053,805
Total ending loans balance	$	155,527	$	556,612	$	299,589	$	26,929	$	32,200			$	1,070,857

22

	December 31, 2015
	Commercial, Financial, and Agricultural		Real Estate Mortgages						Installment Loans to Individuals		Unallocated
(In Thousands)			Residential		Commercial		Construction						Totals
Allowance for Loan Losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	75	$	376	$	1,653	$	—	$	—	$	—	$	2,104
Collectively evaluated for impairment	1,457		4,740		2,564		160		243		776		9,940
Total ending allowance balance	$	1,532	$	5,116	$	4,217	$	160	$	243	$	776	$	12,044
Loans:
Individually evaluated for impairment	$	469	$	2,374	$	12,487	$	212	$	—			$	15,542
Loans acquired with deteriorated credit quality	—		341		—		—		—				341
Collectively evaluated for impairment	163,603		523,468		290,052		26,612		27,001				1,030,736
Total ending loans balance	$	164,072	$	526,183	$	302,539	$	26,824	$	27,001			$	1,046,619

Note 7.  Net Periodic Benefit Cost-Defined Benefit Plans

For a detailed disclosure on the Company’s pension and employee benefits plans, please refer to Note 13 of the Company’s Consolidated Financial Statements included in the Annual Report on Form 10-K for the year ended December 31, 2015.

The following sets forth the components of the net periodic benefit/cost of the domestic non-contributory defined benefit plan for the three and nine months ended September 30, 2016 and 2015, respectively:

	Three Months Ended September 30,						Nine Months Ended September 30,
(In Thousands)	2016			2015			2016			2015
Service cost	$	17		$	16		$	51		$	48
Interest cost	193			189			579			567
Expected return on plan assets	(251		)	(246		)	(753		)	(737		)
Amortization of net loss	39			39			117			119
Net periodic benefit cost	$	(2	)	$	(2	)	$	(6	)	$	(3	)

Employer Contributions

The Company previously disclosed in its consolidated financial statements, included in the Annual Report on Form 10-K for the year ended December 31, 2015, that it expected to contribute a minimum of $500,000 to its defined benefit plan in 2016.  As of September 30, 2016, there were contributions of $500,000 made to the plan with additional contributions of at least $250,000 anticipated during the remainder of 2016.

Note 8.  Employee Stock Purchase Plan

The Company maintains an Employee Stock Purchase Plan (“Plan”).  The Plan is intended to encourage employee participation in the ownership and economic progress of the Company.  The Plan allows for up to 1,000,000 shares to be purchased by employees.  The purchase price of the shares is 95% of market value with an employee eligible to purchase up to the lesser of 15% of base compensation or $12,000 in market value annually.  During the nine months ended September 30, 2016 and 2015, there were 1,617 and 1,723 shares issued under the plan, respectively.

23

Note 9.  Off Balance Sheet Risk

The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers.  These financial instruments are primarily comprised of commitments to extend credit, standby letters of credit, and credit exposure from the sale of assets with recourse.  These instruments involve, to varying degrees, elements of credit, interest rate, or liquidity risk in excess of the amount recognized in the Consolidated Balance Sheet.  The contract amounts of these instruments express the extent of involvement the Company has in particular classes of financial instruments.

The Company’s exposure to credit loss from nonperformance by the other party to the financial instruments for commitments to extend credit and standby letters of credit is represented by the contractual amount of these instruments.  The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments.  The Company may require collateral or other security to support financial instruments with off-balance sheet credit risk.

Financial instruments whose contract amounts represent credit risk are as follows at September 30, 2016 and December 31, 2015:

(In Thousands)	September 30, 2016		December 31, 2015
Commitments to extend credit	$	254,123	$	241,936
Standby letters of credit	6,607		4,786
Credit exposure from the sale of assets with recourse	9,398		6,523
	$	270,128	$	253,245

Commitments to extend credit are legally binding agreements to lend to customers.  Commitments generally have fixed expiration dates or other termination clauses and may require payment of fees.  Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future liquidity requirements.  The Company evaluates each customer’s credit worthiness on a case-by-case basis.  The amount of collateral obtained, if deemed necessary by the Company, on an extension of credit is based on management’s credit assessment of the counterparty.

Standby letters of credit represent conditional commitments issued by the Company to guarantee the performance of a customer to a third party.  These instruments are issued primarily to support bid or performance related contracts.  The coverage period for these instruments is typically a one year period with an annual renewal option subject to prior approval by management.  Fees earned from the issuance of these letters are recognized upon expiration of the coverage period.  For secured letters of credit, the collateral is typically Bank deposit instruments or customer business assets.

Note 10.  Fair Value Measurements

The following disclosures show the hierarchal disclosure framework associated with the level of pricing observations utilized in measuring assets and liabilities at fair value.

Level I:	Quoted prices are available in active markets for identical assets or liabilities as of the reported date.
Level II:	Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reported date. The nature of these assets and liabilities include items for which quoted prices are available but traded less frequently, and items that are fair valued using other financial instruments, the parameters of which can be directly observed.
Level III:	Assets and liabilities that have little to no pricing observability as of the reported date. These items do not have two-way markets and are measured using management’s best estimate of fair value, where the inputs into the determination of fair value require significant management judgment or estimation.

This hierarchy requires the use of observable market data when available.

The following table presents the assets reported on the balance sheet at their fair value on a recurring basis as of September 30, 2016 and December 31, 2015, by level within the fair value hierarchy. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

24

	September 30, 2016
(In Thousands)	Level I		Level II		Level III		Total
Assets measured on a recurring basis:
Investment securities, available for sale:
U.S. Government and agency securities	$	—	$	—	$	—	$	—
Mortgage-backed securities	—		10,259		—		10,259
Asset-backed securities	—		1,538		—		1,538
State and political securities	—		62,642		—		62,642
Other debt securities	—		54,213		—		54,213
Financial institution equity securities	10,773		—		—		10,773
Other equity securities	1,632		—		—		1,632
Investment securities, trading:
Financial institution equity securities	—		—		—		—
Total assets measured on a recurring basis	$	12,405	$	128,652	$	—	$	141,057

	December 31, 2015
(In Thousands)	Level I		Level II		Level III		Total
Assets measured on a recurring basis:
Investment securities, available for sale:
U.S. Government and agency securities	$	—	$	3,549	$	—	$	3,549
Mortgage-backed securities	—		10,009		—		10,009
Asset-backed securities	—		1,940		—		1,940
State and political securities	—		86,555		—		86,555
Other debt securities	—		57,772		—		57,772
Financial institution equity securities	11,483		—		—		11,483
Other equity securities	4,849		—		—		4,849
Investment securities, trading:
Financial institution equity securities	73		—		—		73
Total assets measured on a recurring basis	$	16,405	$	159,825	$	—	$	176,230

The following table presents the assets reported on the Consolidated Balance Sheet at their fair value on a non-recurring basis as of September 30, 2016 and December 31, 2015, by level within the fair value hierarchy. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. 

	September 30, 2016
(In Thousands)	Level I		Level II		Level III		Total
Assets measured on a non-recurring basis:
Impaired loans	$	—	$	—	$	14,430	$	14,430
Other real estate owned	—		—		1,290		1,290
Total assets measured on a non-recurring basis	$	—	$	—	$	15,720	$	15,720

	December 31, 2015
(In Thousands)	Level I		Level II		Level III		Total
Assets measured on a non-recurring basis:
Impaired loans	$	—	$	—	$	13,779	$	13,779
Other real estate owned	—		—		1,696		1,696
Total assets measured on a non-recurring basis	$	—	$	—	$	15,475	$	15,475

25

The following tables present a listing of significant unobservable inputs used in the fair value measurement process for items valued utilizing level III techniques as of September 30, 2016 and December 31, 2015: 

	September 30, 2016
	Quantitative Information About Level III Fair Value Measurements
(In Thousands)	Fair Value		Valuation Technique(s)	Unobservable Inputs	Range	Weighted Average
Impaired loans	$	5,126	Discounted cash flow	Temporary reduction in payment amount	0 to (70)%	(16)%
	9,304		Appraisal of collateral	Appraisal adjustments (1)	0 to (20)%	(13)%
Other real estate owned	$	1,290	Appraisal of collateral (1)

(1) Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses.

	December 31, 2015
	Quantitative Information About Level III Fair Value Measurements
(In Thousands)	Fair Value		Valuation Technique(s)	Unobservable Inputs	Range	Weighted Average
Impaired loans	$	5,696	Discounted cash flow	Temporary reduction in payment amount	0 to (70)%	(17)%
	8,083		Appraisal of collateral	Appraisal adjustments (1)	0 to (20)%	(15)%
Other real estate owned	$	1,696	Appraisal of collateral (1)

(1) Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses.

The discounted cash flow valuation technique is utilized to determine the fair value of performing impaired loans, while non-performing impaired loans utilize the appraisal of collateral method.

The significant unobservable inputs used in the fair value measurement of the Company’s impaired loans using the discounted cash flow valuation technique include temporary changes in payment amounts and the probability of default.  Significant increases (decreases) in payment amounts would result in significantly higher (lower) fair value measurements. 

The significant unobservable input used in the fair value measurement of the Company’s impaired loans using the appraisal of collateral valuation technique include appraisal adjustments, which are adjustments to appraisals by management for qualitative factors such as economic conditions and estimated liquidation expenses.  The significant unobservable input used in the fair value measurement of the Company’s other real estate owned are the same inputs used to value impaired loans using the appraisal of collateral valuation technique.

Note 11. Fair Value of Financial Instruments

The Company is required to disclose fair values for its financial instruments.  Fair values are made at a specific point in time, based on relevant market information and information about the financial instrument.  These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument.  Also, it is the Company’s general practice and intention to hold most of its financial instruments to maturity and not to engage in trading or sales activities.  Because no market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors.  These fair values are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision.  Changes in assumptions can significantly affect the fair values.

Fair values have been determined by the Company using historical data and an estimation methodology suitable for each category of financial instruments.  The Company’s fair values, methods, and assumptions are set forth below for the Company’s other financial instruments.

As certain assets and liabilities, such as deferred tax assets, premises and equipment, and many other operational elements of the Company, are not considered financial instruments but have value, this fair value of financial instruments would not represent the full market value of the Company.

26

The fair values of the Company’s financial instruments are as follows at September 30, 2016 and December 31, 2015:

	Carrying		Fair		Fair Value Measurements at September 30, 2016
(In Thousands)	Value		Value		Level I		Level II		Level III
Financial assets:
Cash and cash equivalents	$	60,181	$	60,181	$	60,181	$	—	$	—
Investment securities:
Available for sale	141,057		141,057		12,405		128,652		—
Trading	—		—		—		—		—
Loans held for sale	2,160		2,160		2,160		—		—
Loans, net	1,056,762		1,085,769		—		—		1,085,769
Bank-owned life insurance	27,176		27,176		27,176		—		—
Accrued interest receivable	3,800		3,800		3,800		—		—
Financial liabilities:
Interest-bearing deposits	$	792,698	$	787,163	$	564,519	$	—	$	222,644
Noninterest-bearing deposits	295,599		295,599		295,599		—		—
Short-term borrowings	11,579		11,579		11,579		—		—
Long-term borrowings	91,025		92,283		—		—		92,658
Accrued interest payable	481		481		481		—		—

	Carrying		Fair		Fair Value Measurements at December 31, 2015
(In Thousands)	Value		Value		Level I		Level II		Level III
Financial assets:
Cash and cash equivalents	$	22,796	$	22,796	$	22,796	$	—	$	—
Investment securities:
Available for sale	176,157		176,157		16,332		159,825		—
Trading	73		73		73		—		—
Loans held for sale	757		757		757		—		—
Loans, net	1,033,163		1,045,140		—		—		1,045,140
Bank-owned life insurance	26,667		26,667		26,667		—		—
Accrued interest receivable	3,686		3,686		3,686		—		—
Financial liabilities:
Interest-bearing deposits	$	751,797	$	729,685	$	509,206	$	—	$	220,479
Noninterest-bearing deposits	280,083		280,083		280,083		—		—
Short-term borrowings	46,638		46,638		46,638		—		—
Long-term borrowings	91,025		91,783		—		—		91,783
Accrued interest payable	426		426		426		—		—

Cash and Cash Equivalents, Loans Held for Sale, Accrued Interest Receivable, Short-term Borrowings, and Accrued Interest Payable:

The fair value is equal to the carrying value.

Investment Securities:

The fair value of investment securities available for sale and trading is equal to the available quoted market price. If no quoted market price is available, fair value is estimated using the quoted market price for similar securities.  Regulatory stocks’ fair value is equal to the carrying value.

Loans:

Fair values are estimated for portfolios of loans with similar financial characteristics.  Loans are segregated by type such as commercial, financial, and agricultural, commercial real estate, residential real estate, construction real estate, and installment

27

loans to individuals.  Each loan category is further segmented into fixed and adjustable rate interest terms and by performing and nonperforming categories.

The fair value of performing loans is calculated by discounting scheduled cash flows through the estimated maturity using estimated market discount rates that reflect the credit and interest rate risk inherent in the loan.  The estimate of maturity is based on the Company’s historical experience with repayments for each loan classification, modified, as required, by an estimate of the effect of current economic and lending conditions.

Fair value for significant nonperforming loans is based on recent external appraisals.  If appraisals are not available, estimated cash flows are discounted using a rate commensurate with the risk associated with the estimated cash flows.  Assumptions regarding credit risk, cash flows, and discounted rates are judgmentally determined using available market information and specific borrower information.

Bank-Owned Life Insurance:

The fair value is equal to the cash surrender value of the life insurance policies.

Deposits:

The fair value of deposits with no stated maturity, such as noninterest-bearing demand deposits, savings, NOW, and money market accounts, is equal to the amount payable on demand.  The fair value of certificates of deposit is based on the discounted value of contractual cash flows.

The fair value estimates above do not include the benefit that results from the low-cost funding provided by the deposit liabilities compared to the cost of borrowing funds in the market, commonly referred to as the core deposit intangible.

Long Term Borrowings:

The fair value of long term borrowings is based on the discounted value of contractual cash flows.

Commitments to Extend Credit, Standby Letters of Credit, and Financial Guarantees Written:

There is no material difference between the notional amount and the estimated fair value of off-balance sheet items.  The contractual amounts of unfunded commitments and letters of credit are presented in Note 9 (Off Balance Sheet Risk).

Note 12.  Stock Options

In 2014, the Company adopted the 2014 Equity Incentive Plan designed to help the Company attract, retain, and motivate employees and non-employee directors. Incentive stock options, non-qualified stock options, and restricted stock may be granted as part of the plan.

On August 27, 2015, the Company issued 38,750 stock options to a group of employees. Each option granted has a strike price of $42.03 and is exercisable only after five years following the date of the grant of such options. The options expire ten years following the date of the grant of such options.

A summary of stock option activity is presented below:

	September 30, 2016				December 31, 2015
	Shares		Weighted Average Exercise Price		Shares		Weighted Average Exercise Price
Outstanding, beginning of year	34,750		$	42.03	—		$	—
Granted	—		—		38,750		42.03
Exercised	—		—		—		—
Forfeited	(3,750	)	42.03		(4,000	)	42.03
Outstanding, end of year	31,000		$	42.03	34,750		$	42.03

The estimated fair value of options, including the effect of estimated forfeitures, is recognized as expense on a straightline basis

over the options’ vesting periods while ensuring that the cumulative amount of compensation cost recognized at least equals the

28

value of the vested portion of the award at that date. The Company determines the fair value of options granted using the Black-Scholes option-pricing model. The risk-free interest rate is based on the United States Treasury bond with a similar term to the expected life of the options at the grant date. Expected volatility was estimated based on the adjusted historic volatility of the Company’s shares. The expected life was estimated to equal the contractual life of the options. The dividend yield rate was based upon recent historical dividends paid on shares.

Note 13.  Reclassification of Comparative Amounts

Certain comparative amounts for the prior period have been reclassified to conform to current period presentations. Such reclassifications had no effect on net income or shareholders’ equity.

CAUTIONARY STATEMENT FOR PURPOSES OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

This Report contains certain “forward-looking statements” including statements concerning plans, objectives, future events or performance and assumptions and other statements which are other than statements of historical fact.  The Company cautions readers that the following important factors, among others, may have affected and could in the future affect the Company’s actual results and could cause the Company’s actual results for subsequent periods to differ materially from those expressed in any forward-looking statement made by or on behalf of the Company herein:  (i) the effect of changes in laws and regulations, including federal and state banking laws and regulations, with which the Company must comply, and the associated costs of compliance with such laws and regulations either currently or in the future as applicable; (ii) the effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies as well as by the Financial Accounting Standards Board, or of changes in the Company’s organization, compensation and benefit plans; (iii) the effect on the Company’s competitive position within its market area of the  increasing consolidation within the banking and financial services industries, including the increased competition from larger regional and out-of-state banking organizations as well as non-bank providers of various financial services; (iv) the effect of changes in interest rates; (v) the effect of changes in the business cycle and downturns in the local, regional or national economies; and (vi) the Risk Factors identified in Item 1A of the Company's Annual Report on Form 10-K for the year ended December 31, 2015 and in other filings made by the Company under the Securities Exchange Act of 1934.

You should not put undue reliance on any forward-looking statements.  These statements speak only as of the date of this Quarterly Report on Form 10-Q, even if subsequently made available by the Company on its website or otherwise.  The Company undertakes no obligation to update or revise these statements to reflect events or circumstances occurring after the date of this Quarterly Report on Form 10-Q.

29

Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operation

EARNINGS SUMMARY

Comparison of the Three and Nine Months Ended September 30, 2016 and 2015

Summary Results

Net income for the three months ended September 30, 2016 was $3,059,000 compared to $3,364,000 for the same period of 2015 as after-tax securities gains decreased $153,000 (from a gain of $325,000 to a gain of $172,000). Basic and diluted earnings per share for the three months ended September 30, 2016 and 2015 were $0.65 and $0.71, respectively. Return on average assets and return on average equity were 0.91% and 8.69% for the three months ended September 30, 2016 compared to 1.04% and 9.89% for the corresponding period of 2015. Net income from core operations (“operating earnings”) decreased to $2,887,000 for the three months ended September 30, 2016 compared to $3,039,000 for the same period of 2015. Operating earnings per share for the three months ended September 30, 2016 and 2015 were $0.61 and $0.64, respectively.

The nine months ended September 30, 2016 generated net income of $9,529,000 compared to $10,152,000 for the same period of 2015. Comparable results were impacted by a decrease in after-tax securities gains of $296,000 (from a gain of $1,106,000 to a gain of $810,000). Earnings per share, basic and dilutive, for the nine months ended September 30, 2016 were $2.01 compared to $2.12 for the comparable period of 2015. Return on average assets and return on average equity were 0.95% and 9.14% for the nine months ended September 30, 2016 compared to 1.06% and 9.90% for the corresponding period of 2015. Operating earnings decreased to $8,719,000 for the nine months ended September 30, 2016 compared to $9,046,000 for the same period of 2015, as the 2015 period included non-recurring gains on the sale of other real estate owned of $175,000 the 2016 level. The 2016 period also included expenses related to a data breach at a national restaurant chain that impacted our customer base. In addition, the investment portfolio has declined $61,599,000 from September 30, 2015 to September 30, 2016 as part of our strategy to position the balance sheet for a rising rate environment. Operating earnings per share for the nine months ended September 30, 2016 were $1.84 basic and dilutive compared to $1.89 basic and dilutive for the nine months ended September 30, 2015.

Management uses the non-GAAP measure of net income from core operations, or operating earnings, in its analysis of the Company’s performance.  This measure, as used by the Company, adjusts net income by excluding significant gains or losses that are unusual in nature.  Because certain of these items and their impact on the Company’s performance are difficult to predict, management believes the presentation of financial measures excluding the impact of such items provides useful supplemental information in evaluating the operating results of the Company’s core businesses.  For purposes of this Quarterly Report on Form 10-Q, net income from core operations, or operating earnings, means net income adjusted to exclude after-tax net securities gains or losses and bank-owned life insurance gains on death benefit.  These disclosures should not be viewed as a substitute for net income determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies.

Reconciliation of GAAP and Non-GAAP Financial Measures

(Dollars in Thousands, Except Per Share Data)	Three Months Ended September 30,				Nine Months Ended September 30,
	2016		2015		2016		2015
GAAP net income	$	3,059	$	3,364	$	9,529	$	10,152
Less: net securities, net of tax	172		325		810		1,106
Non-GAAP operating earnings	$	2,887	$	3,039	$	8,719	$	9,046

	Three Months Ended September 30,				Nine Months Ended September 30,
	2016		2015		2016		2015
Return on average assets (ROA)	0.91	%	1.04	%	0.95	%	1.06	%
Less: net securities, net of tax	0.05	%	0.10	%	0.08	%	0.12	%
Non-GAAP operating ROA	0.86	%	0.94	%	0.87	%	0.94	%

30

	Three Months Ended September 30,				Nine Months Ended September 30,
	2016		2015		2016		2015
Return on average equity (ROE)	8.69	%	9.89	%	9.14	%	9.90	%
Less: net securities, net of tax	0.49	%	0.95	%	0.78	%	1.08	%
Non-GAAP operating ROE	8.20	%	8.94	%	8.36	%	8.82	%

	Three Months Ended September 30,				Nine Months Ended September 30,
	2016		2015		2016		2015
Basic earnings per share (EPS)	$	0.65	$	0.71	$	2.01	$	2.12
Less: net securities, net of tax	0.04		0.07		0.17		0.23
Non-GAAP basic operating EPS	$	0.61	$	0.64	$	1.84	$	1.89

	Three Months Ended September 30,				Nine Months Ended September 30,
	2016		2015		2016		2015
Dilutive EPS	$	0.65	$	0.71	$	2.01	$	2.12
Less: net securities, net of tax	0.04		0.07		0.17		0.23
Non-GAAP dilutive operating EPS	$	0.61	$	0.64	$	1.84	$	1.89

Interest and Dividend Income

Interest and dividend income for the three months ended September 30, 2016 increased to $11,660,000 compared to $11,523,000 for the same period of 2015.  Loan portfolio income increased due to the impact of portfolio growth, primarily in home equity products.  The loan portfolio income increase was offset by a decrease in investment portfolio interest due to a decline in the average taxable equivalent yield of 47 bp as the duration in the investment portfolio continues to be shortened in order to reduce interest rate and market risk in the future. This is being undertaken primarily through the sale of long-term municipal bonds that have a maturity date of 2025 or later and securities with a call date within the next five years. To offset the revenue impact of the declining asset yields, a focus has been placed on increasing earning assets by adding quality short and intermediate term loans such as home equity loans, even though these new earning assets are at lower yields than legacy assets.

During the nine months ended September 30, 2016, interest and dividend income was $35,056,000, an increase of $607,000 over the same period of 2015. Interest income on the loan portfolio increased as the growth in the portfolio was countered by a 2 bp decline in average yield. The investment portfolio interest income decreased as the portfolio size was decreased in order to reduce interest rate and market risk, while the yield on the investment portfolio declined 39 bp.

Interest and dividend income composition for the three and nine months ended September 30, 2016 and 2015 was as follows:

	Three Months Ended
	September 30, 2016				September 30, 2015				Change
(In Thousands)	Amount		% Total		Amount		% Total		Amount			%
Loans including fees	$	10,541	90.40	%	$	9,862	85.59	%	$	679		6.89		%
Investment securities:
Taxable	601		5.16		829		7.19		(228		)	(27.50	)
Tax-exempt	329		2.82		676		5.87		(347		)	(51.33	)
Dividend and other interest income	189		1.62		156		1.35		33			21.15
Total interest and dividend income	$	11,660	100.00	%	$	11,523	100.00	%	$	137		1.19		%

31

	Nine Months Ended
	September 30, 2016				September 30, 2015				Change
(In Thousands)	Amount		% Total		Amount		% Total		Amount			%
Loans including fees	$	31,362	89.46	%	$	28,937	84.00	%	$	2,425		8.38		%
Investment securities:
Taxable	1,825		5.21		2,728		7.92		(903		)	(33.10	)
Tax-exempt	1,203		3.43		2,187		6.35		(984		)	(44.99	)
Dividend and other interest income	666		1.90		597		1.73		69			11.56
Total interest and dividend income	$	35,056	100.00	%	$	34,449	100.00	%	$	607		1.76		%

Interest Expense

Interest expense for the three months ended September 30, 2016 increased $124,000 to $1,413,000 compared to $1,289,000 for the same period of 2015.  The increase in interest expense is the result of growth within the deposit portfolio and the lengthening of the time deposit portfolio as part of a strategy to build balance sheet protection in a rising rate environment, offset by a decrease in short term borrowing utilization.

Interest expense for the nine months ended September 30, 2016 increased 6.80% from the same period of 2015. The reasons noted for the increase in interest expense for the three month period comparison also apply to the nine month period.

Interest expense composition for the three and nine months ended September 30, 2016 and 2015 was as follows:

	Three Months Ended
	September 30, 2016				September 30, 2015				Change
(In Thousands)	Amount		% Total		Amount		% Total		Amount			%
Deposits	$	909	64.33	%	$	800	62.07	%	$	109		13.63		%
Short-term borrowings	7		0.50		31		2.40		(24		)	(77.42	)
Long-term borrowings	497		35.17		458		35.53		39			8.52
Total interest expense	$	1,413	100.00	%	$	1,289	100.00	%	$	124		9.62		%

	Nine Months Ended
	September 30, 2016				September 30, 2015				Change
(In Thousands)	Amount		% Total		Amount		% Total		Amount			%
Deposits	$	2,624	63.29	%	$	2,328	59.97	%	$	296		12.71		%
Short-term borrowings	41		0.99		78		2.01		(37		)	(47.44	)
Long-term borrowings	1,481		35.72		1,476		38.02		5			0.34
Total interest expense	$	4,146	100.00	%	$	3,882	100.00	%	$	264		6.80		%

Net Interest Margin

The net interest margin (“NIM”) for the three months ended September 30, 2016 was 3.37% compared to 3.55% for the corresponding period of 2015.  The decline in the net interest margin was driven by a decreasing yield on the investment portfolio due to the continued low rate environment. The impact of the declining earning asset yield and decreasing investment portfolio balance was partially offset by 6.65% growth in the balance of the average loan portfolio from September 30, 2015 to September 30, 2016. The primary funding for the loan growth was an increase in core deposits. These deposits represent a lower cost funding source than time deposits and comprise 79.60% of total deposits at September 30, 2016 compared to 78.02% at September 30, 2015. Limiting the positive impact on the net interest margin caused by the growth in core deposits was the lengthening of the time deposit portfolio coupled with additional FHLB long-term borrowings as part of our strategy to prepare the balance sheet for a rising rate environment.

The NIM for the nine months ended September 30, 2016 was 3.45% compared to 3.63% for the same period of 2015. The impact of the items mentioned in the three month discussion also applies to the nine months ended.

32

The following is a schedule of average balances and associated yields for the three and nine months ended September 30, 2016 and 2015:

	AVERAGE BALANCES AND INTEREST RATES
	Three Months Ended September 30, 2016						Three Months Ended September 30, 2015
(In Thousands)	Average Balance		Interest		Average Rate		Average Balance		Interest		Average Rate
Assets:
Tax-exempt loans	$	45,715	$	452	3.93	%	$	43,562	$	423	3.85	%
All other loans	1,011,393		10,243		4.03	%	947,665		9,583		4.01	%
Total loans	1,057,108		10,695		4.02	%	991,227		10,006		4.00	%
Taxable securities	93,893		725		3.09	%	125,618		982		3.13	%
Tax-exempt securities	49,231		498		4.05	%	80,535		1,024		5.09	%
Total securities	143,124		1,223		3.42	%	206,153		2,006		3.89	%
Interest-bearing deposits	48,125		65		0.54	%	3,216		3		0.37	%
Total interest-earning assets	1,248,357		11,983		3.82	%	1,200,596		12,015		3.98	%
Other assets	101,312						97,363
Total assets	$	1,349,669					$	1,297,959
Liabilities and shareholders’ equity:
Savings	$	151,464	15		0.04	%	$	143,353	14		0.04	%
Super Now deposits	184,440		107		0.23	%	193,659		126		0.26	%
Money market deposits	245,643		170		0.28	%	210,029		145		0.27	%
Time deposits	223,082		617		1.10	%	219,306		515		0.93	%
Total interest-bearing deposits	804,629		909		0.45	%	766,347		800		0.41	%
Short-term borrowings	15,748		7		0.18	%	40,801		31		0.30	%
Long-term borrowings	91,025		497		2.14	%	81,880		458		2.19	%
Total borrowings	106,773		504		1.85	%	122,681		489		1.56	%
Total interest-bearing liabilities	911,402		1,413		0.61	%	889,028		1,289		0.57	%
Demand deposits	281,586						256,264
Other liabilities	15,916						16,619
Shareholders’ equity	140,765						136,048
Total liabilities and shareholders’ equity	$	1,349,669					$	1,297,959
Interest rate spread					3.21	%					3.40	%
Net interest income/margin			$	10,570	3.37	%			$	10,726	3.55	%

1. Information on this table has been calculated using average daily balance sheets to obtain average balances.

2. Non-accrual loans have been included with loans for the purpose of analyzing net interest earnings.

3. Income and rates on a fully taxable equivalent basis include an adjustment for the difference between annual income from tax-exempt obligations and the taxable equivalent of such income at the standard 34% tax rate.

33

	AVERAGE BALANCES AND INTEREST RATES
	Nine Months Ended September 30, 2016						Nine Months Ended September 30, 2015
(In Thousands)	Average Balance		Interest		Average Rate		Average Balance		Interest		Average Rate
Assets:
Tax-exempt loans	$	49,204	$	1,432	3.89	%	$	39,901	$	1,194	4.00	%
All other loans	999,685		30,417		4.06	%	920,675		28,149		4.09	%
Total loans	1,048,889		31,849		4.06	%	960,576		29,343		4.08	%
Taxable securities	95,652		2,344		3.27	%	133,191		3,316		3.32	%
Tax-exempt securities	56,291		1,823		4.32	%	85,263		3,314		5.18	%
Total securities	151,943		4,167		3.66	%	218,454		6,630		4.05	%
Interest-bearing deposits	38,411		147		0.51	%	4,500		9		0.27	%
Total interest-earning assets	1,239,243		36,163		3.90	%	1,183,530		35,982		4.06	%
Other assets	99,295						97,151
Total assets	$	1,338,538					$	1,280,681
Liabilities and shareholders’ equity:
Savings	$	151,158	43		0.04	%	$	142,812	43		0.04	%
Super Now deposits	190,190		356		0.25	%	190,653		379		0.27	%
Money market deposits	234,918		471		0.27	%	208,317		424		0.27	%
Time deposits	221,676		1,754		1.06	%	218,987		1,482		0.90	%
Total interest-bearing deposits	797,942		2,624		0.44	%	760,769		2,328		0.41	%
Short-term borrowings	20,273		41		0.27	%	36,111		78		0.29	%
Long-term borrowings	91,025		1,481		2.14	%	82,597		1,476		2.36	%
Total borrowings	111,298		1,522		1.8	%	118,708		1,554		1.73	%
Total interest-bearing liabilities	909,240		4,146		0.61	%	879,477		3,882		0.59	%
Demand deposits	274,488						247,130
Other liabilities	15,775						17,327
Shareholders’ equity	139,035						136,747
Total liabilities and shareholders’ equity	$	1,338,538					$	1,280,681
Interest rate spread					3.29	%					3.47	%
Net interest income/margin			$	32,017	3.45	%			$	32,100	3.63	%

The following table presents the adjustment to convert net interest income to net interest income on a fully taxable equivalent basis for the three and nine months ended September 30, 2016 and 2015.

	Three Months Ended September 30,				Nine Months Ended September 30,
(In Thousands)	2016		2015		2016		2015
Total interest income	$	11,660	$	11,523	$	35,056	$	34,449
Total interest expense	1,413		1,289		4,146		3,882
Net interest income	10,247		10,234		30,910		30,567
Tax equivalent adjustment	323		492		1,107		1,533
Net interest income (fully taxable equivalent)	$	10,570	$	10,726	$	32,017	$	32,100

34

The following table sets forth the respective impact that both volume and rate changes have had on net interest income on a fully taxable equivalent basis for the three and nine months ended September 30, 2016 and 2015:

	Three Months Ended September 30,									Nine Months Ended September 30,
	2016 vs. 2015									2016 vs. 2015
	Increase (Decrease) Due to									Increase (Decrease) Due to
(In Thousands)	Volume			Rate			Net			Volume			Rate			Net
Interest income:
Tax-exempt loans	$	20		$	9		$	29		$	252		$	(14	)	$	238
All other loans	615			45			660			2,342			(74		)	2,268
Taxable investment securities	(244		)	(13		)	(257		)	(923		)	(49		)	(972		)
Tax-exempt investment securities	(344		)	(182		)	(526		)	(1,002		)	(489		)	(1,491		)
Interest bearing deposits	61			1			62			45			93			138
Total interest-earning assets	108			(140		)	(32		)	714			(533		)	181
Interest expense:
Savings deposits	1			—			1			2			(2		)	—
Super Now deposits	(5		)	(14		)	(19		)	(1		)	(22		)	(23		)
Money market deposits	24			1			25			50			(3		)	47
Time deposits	9			93			102			19			253			272
Short-term borrowings	(14		)	(10		)	(24		)	(32		)	(5		)	(37		)
Long-term borrowings	50			(11		)	39			98			(93		)	5
Total interest-bearing liabilities	65			59			124			136			128			264
Change in net interest income	$	43		$	(199	)	$	(156	)	$	578		$	(661	)	$	(83	)

Provision for Loan Losses

The provision for loan losses is based upon management’s quarterly review of the loan portfolio.  The purpose of the review is to assess loan quality, identify impaired loans, analyze delinquencies, ascertain loan growth, evaluate potential charge-offs and recoveries, and assess general economic conditions in the markets served.  An external independent loan review is also performed annually for the Banks.  Management remains committed to an aggressive program of problem loan identification and resolution.

The allowance for loan losses is determined by applying loss factors to outstanding loans by type, excluding loans for which a specific allowance has been determined.  Loss factors are based on management’s consideration of the nature of the portfolio segments, changes in mix and volume of the loan portfolio, and historical loan loss experience.  In addition, management considers industry standards and trends with respect to non-performing loans and its knowledge and experience with specific lending segments.

Although management believes it uses the best information available to make such determinations and that the allowance for loan losses is adequate at September 30, 2016, future adjustments could be necessary if circumstances or economic conditions differ substantially from the assumptions used in making the initial determinations.  A downturn in the local economy, increased unemployment, and delays in receiving financial information from borrowers could result in increased levels of nonperforming assets, charge-offs, loan loss provisions, and reductions in income.  Additionally, as an integral part of the examination process, bank regulatory agencies periodically review the Banks' loan loss allowance.  The banking agencies could require the recognition of additions to the loan loss allowance based on their judgment of information available to them at the time of their examination.

When determining the appropriate allowance level, management has attributed the allowance for loan losses to various portfolio segments; however, the allowance is available for the entire portfolio as needed.

The allowance for loan losses increased from $12,044,000 at December 31, 2015 to $12,718,000 at September 30, 2016.  The increase in the allowance for loan losses was driven by growth in the loan portfolio and an increase in total nonperforming loans. Limiting the increase in the allowance for loan losses was minimal net charge-offs during the nine months ended September 30, 2016 of $192,000.  The majority of the loans charged-off had a specific allowance within the allowance for losses.  At September 30, 2016 and December 31, 2015, the allowance for loan losses to total loans was 1.19% and 1.15%, respectively.

35

The provision for loan losses totaled $258,000 and $520,000 for the three months ended September 30, 2016 and 2015 and $866,000 and $1,820,000 for the nine months ended September 30, 2016.  The amount of the provision for loan losses was primarily the result of loan growth and an increase in non-performing loans offset by minimal net charge-offs.

Nonperforming loans increasing to $11,530,000 at September 30, 2016 from $8,608,000 at September 30, 2015 is primarily the result of a large commercial real estate loan that was placed on non-accrual status.  The ratio of nonperforming loans to total loans was 1.08% and 0.86% at September 30, 2016 and 2015, respectively, and the ratio of the allowance for loan losses to nonperforming loans was 110.30% and 133.47% at September 30, 2016 and 2015, respectively. Internal loan review and analysis coupled with loan growth dictated a provision for loan losses of $866,000 for the nine months ended September 30, 2016.   

The following is a table showing total nonperforming loans as of:

	Total Nonperforming Loans
(In Thousands)	90 Days Past Due		Non-accrual		Total
September 30, 2016	$	114	$	11,416	$	11,530
June 30, 2016	512		11,114		11,626
March 31, 2016	308		11,340		11,648
December 31, 2015	979		8,467		9,446
September 30, 2015	99		8,509		8,608

Non-interest Income

Total non-interest income for the three months ended September 30, 2016 compared to the same period in 2015 decreased $55,000 to $3,082,000.  Excluding net securities gains, non-interest income for the three months ended September 30, 2016 increased $177,000 compared to the same period in 2015.  The increase in gain on sale of loans was driven by a shift in distribution channels and the hiring of additional mortgage loan officers over the past year.  The increase in other non-interest income is primarily the result of increased debit card income.

Total non-interest income for the nine months ended September 30, 2016 compared to the same period in 2015 decreased $197,000. Excluding net securities gains, non-interest income increased $251,000 compared the 2015 period. The increase in other non-interest income is primarily the result of an increase in debit card income offset by a decrease in non-recurring gains on the sale of other real estate owned of $175,000 from 2015 to 2016.

Non-interest income composition for the three and nine months ended September 30, 2016 and 2015 was as follows:

	Three Months Ended
	September 30, 2016				September 30, 2015					Change
(In Thousands)	Amount		% Total		Amount			% Total		Amount			%
Service charges	$	585	18.98	%	$	621		19.80	%	$	(36	)	(5.80	)%
Net securities gains, available for sale	253		8.21		526			16.76		(273		)	(51.90	)
Net securities gains (losses), trading	8		0.26		(33		)	(1.05	)	41			124.24
Bank-owned life insurance	172		5.58		182			5.80		(10		)	(5.49	)
Gain on sale of loans	658		21.35		524			16.70		134			25.57
Insurance commissions	198		6.42		185			5.90		13			7.03
Brokerage commissions	290		9.41		297			9.47		(7		)	(2.36	)
Other	918		29.79		835			26.62		83			9.94
Total non-interest income	$	3,082	100.00	%	$	3,137		100.00	%	$	(55	)	(1.75	)%

36

	Nine Months Ended
	September 30, 2016				September 30, 2015					Change
(In Thousands)	Amount		% Total		Amount			% Total		Amount			%
Service charges	$	1,678	18.13	%	$	1,772		18.74	%	$	(94	)	(5.30	)%
Net securities gains, available for sale	1,174		12.68		1,713			18.12		(539		)	(31.47	)
Net securities gains (losses), trading	54		0.58		(37		)	(0.39	)	91			245.95
Bank-owned life insurance	516		5.57		541			5.72		(25		)	(4.62	)
Gain on sale of loans	1,691		18.27		1,305			13.80		386			29.58
Insurance commissions	604		6.52		623			6.59		(19		)	(3.05	)
Brokerage commissions	817		8.83		836			8.84		(19		)	(2.27	)
Other	2,723		29.42		2,701			28.58		22			0.81
Total non-interest income	$	9,257	100.00	%	$	9,454		100.00	%	$	(197	)	(2.08	)%

Non-interest Expense

Total non-interest expense increased $209,000 for the three months ended September 30, 2016 compared to the same period of 2015.  The increase in salaries and employee benefits is primarily attributable to increases in health insurance.  Amortization of investment in limited partnerships decreased as several of the partnerships have reached the end of their tax credit generating life and have been fully amortized. Other expenses increased primarily due to increased expenses related to the debit card EMV (chip embedded card) conversion, data breach at a national restaurant chain that impacted our customer base, and system upgrades.

Total non-interest expense for the nine months ended September 30, 2016 compared to the same period in 2015 increased $1,046,000. The reasons noted for the three month period comparison also apply to the nine month period.

Non-interest expense composition for the three and nine months ended September 30, 2016 and 2015 was as follows:

	Three Months Ended
	September 30, 2016				September 30, 2015				Change
(In Thousands)	Amount		% Total		Amount		% Total		Amount			%
Salaries and employee benefits	$	4,507	51.57	%	$	4,302	50.43	%	$	205		4.77	%
Occupancy	544		6.22		529		6.20		15			2.84
Furniture and equipment	662		7.58		686		8.04		(24		)	(3.50	)
Pennsylvania shares tax	220		2.52		244		2.86		(24		)	(9.84	)
Amortization of investment in limited partnerships	46		0.53		165		1.93		(119		)	(72	)
Federal Deposit Insurance Corporation deposit insurance	202		2.31		209		2.45		(7		)	(3.35	)
Marketing	173		1.98		160		1.88		13			8.13
Intangible amortization	90		1.03		73		0.86		17			23.29
Other	2,295		26.26		2,162		25.35		133			6.15
Total non-interest expense	$	8,739	100.00	%	$	8,530	100.00	%	$	209		2.45	%

37

	Nine Months Ended
	September 30, 2016				September 30, 2015				Change
(In Thousands)	Amount		% Total		Amount		% Total		Amount			%
Salaries and employee benefits	$	13,433	50.75	%	$	13,073	51.43	%	$	360		2.75	%
Occupancy	1,630		6.16		1,721		6.77		(91		)	(5.29	)
Furniture and equipment	2,042		7.72		1,924		7.57		118			6.13
Pennsylvania shares tax	698		2.64		711		2.80		(13		)	(1.83	)
Amortization of investment in limited partnerships	266		1.01		496		1.95		(230		)	(46.37	)
Federal Deposit Insurance Corporation deposit insurance	670		2.53		654		2.57		16			2.45
Marketing	568		2.15		434		1.71		134			30.88
Intangible amortization	276		1.04		235		0.92		41			17.45
Other	6,882		26.00		6,171		24.28		711			11.52
Total non-interest expense	$	26,465	100.00	%	$	25,419	100.00	%	$	1,046		4.12	%

Provision for Income Taxes

Income taxes increased $316,000 and $677,000 for the three and nine months ended September 30, 2016 compared to the same periods of 2015.  The primary cause of the increase in tax expense for the three and nine months ended September 30, 2016 compared to 2015 is the impact of a reduction of tax-exempt interest income within the investment portfolio as the portfolio was strategically reduced. Excluding the impact of the net securities gains, the effective tax rate for the three and nine months ended September 30, 2016 was 29.08% and 24.89% compared to 20.62% and 18.55% for the same period of 2015.  The Company currently is in a deferred tax asset position due to the low income housing tax credits earned both currently and previously.  Management has reviewed the deferred tax asset and has determined that the asset will be utilized within the appropriate carry forward period and therefore does not require a valuation allowance.

ASSET/LIABILITY MANAGEMENT

Cash and Cash Equivalents

Cash and cash equivalents increased $37,385,000 from $22,796,000 at December 31, 2015 to $60,181,000 at September 30, 2016 primarily as a result of the following activities during the nine months ended September 30, 2016:

Loans Held for Sale

Activity regarding loans held for sale resulted in sales proceeds trailing loan originations, less $1,691,000 in realized gains, by $1,403,000 for the nine months ended September 30, 2016.

Loans

Gross loans increased $24,273,000 since December 31, 2015 due primarily to an increase in residential real estate mortgage loans driven by successful home equity loan and line of credit gathering efforts.

38

The allocation of the loan portfolio, by category, as of September 30, 2016 and December 31, 2015 is presented below:

	September 30, 2016					December 31, 2015					Change
(In Thousands)	Amount			% Total		Amount			% Total		Amount			%
Commercial, financial, and agricultural	$	155,527		14.54	%	$	164,072		15.70	%	$	(8,545	)	(5.21	)%
Real estate mortgage:
Residential	556,612			52.05		526,183			50.34		30,429			5.78	%
Commercial	299,589			28.01		302,539			28.95		(2,950		)	(0.98	)%
Construction	26,929			2.52		26,824			2.57		105			0.39	%
Installment loans to individuals	32,200			3.01		27,001			2.58		5,199			19.25	%
Net deferred loan fees and discounts	(1,377		)	(0.13	)	(1,412		)	(0.14	)	35			(2.48	)%
Gross loans	$	1,069,480		100.00	%	$	1,045,207		100.00	%	$	24,273		2.32	%

The following table shows the amount of accrual and non-accrual TDRs at September 30, 2016 and December 31, 2015:

	September 30, 2016						December 31, 2015
(In Thousands)	Accrual		Non-accrual		Total		Accrual		Non-accrual		Total
Commercial, financial, and agricultural	$	126	$	137	$	263	$	320	$	149	$	469
Real estate mortgage:
Residential	1,415		572		1,987		1,428		353		1,781
Commercial	4,781		2,187		6,968		5,085		2,312		7,397
	$	6,322	$	2,896	$	9,218	$	6,833	$	2,814	$	9,647

Investments

The fair value of the investment securities portfolio at September 30, 2016 decreased $35,173,000 since December 31, 2015 while the amortized cost of the portfolio decreased $37,043,000.  The decrease in value is the result of the investment portfolio being actively managed in order to reduce interest rate and market risk. This is being undertaken primarily through the sale of long-term municipal bonds that have a maturity date of 2025 or later and securities with a call date within the next five years.  The proceeds of the bond sales are being deployed into loans and intermediate term corporate bonds and short and intermediate term municipal bonds.  The strategy to sell a portion of the long-term bond portfolio does negatively impact current earnings, but this action plays a key role in our long-term asset liability management strategy as the balance sheet is shortened to better prepare for a rising rate environment. The unrealized losses within the debt securities portfolio are the result of market activity, not credit issues/ratings, as approximately 87% of the debt securities portfolio on an amortized cost basis is currently rated A or higher by either S&P or Moody’s.

The Company considers various factors, which include examples from applicable accounting guidance, when analyzing the available for sale portfolio for possible other than temporary impairment.  The Company primarily considers the following factors in its analysis: length of time and severity of the fair value being less than carrying value; reduction of dividend paid (equities); continued payment of dividend/interest, credit rating, and financial condition of an issuer; intent and ability to hold until anticipated recovery (which may be maturity); and general outlook for the economy, specific industry, and entity in question.

The bond portion of the portfolio review is conducted with emphases on several factors.  Continued payment of principal and interest is given primary importance with credit rating and financial condition of the issuer following as the next most important.  Credit ratings were reviewed with the ratings of the bonds being satisfactory.  Bonds that were not currently rated were discussed with a third party and/or underwent an internal financial review.  The Company also monitors whether each of the investments incurred a decline in fair value from carrying value of at least 20% for twelve consecutive months or a similar decline of at least 50% for three consecutive months.  Each bond is reviewed to determine whether it is a general obligation bond, which is backed by the credit and taxing power of the issuing jurisdiction, or revenue bond, which is only payable from specified revenues.  Based on the review undertaken by the Company, the Company determined that the decline in value of the various bond holdings were temporary and were the result of the general market downturns and interest rate/yield curve changes, not credit issues.  The fact that almost all of such bonds are general obligation bonds further solidified the Company’s determination that the decline in the value of these bond holdings is temporary.

39

The fair value of the equity portfolio continues to fluctuate as the economic turbulence continues to impact stock pricing.  The amortized cost of the available for sale equity securities portfolio has decreased $4,022,000 to $11,589,000 at September 30, 2016 from $15,611,000 at December 31, 2015 while the fair value decreased $3,927,000 over the same time period.

The equity portion of the portfolio is reviewed for possible other than temporary impairment in a similar manner to the bond portfolio with greater emphasis placed on the length of time the fair value has been less than the carrying value and financial sector outlook.  The Company also reviews dividend payment activities.  The starting point for the equity analysis is the length and severity of a market price decline.  The Company monitors two primary measures: 20% decline in fair value from carrying value for twelve consecutive months and 50% decline for three consecutive months.

The distribution of credit ratings by amortized cost and fair values for the debt security portfolio at September 30, 2016 follows:

	A- to AAA				B- to BBB+				Not Rated				Total
(In Thousands)	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
Available for sale (AFS)
U.S. Government and agency securities	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Mortgage-backed securities	10,079		10,259		—		—		—		—		10,079		10,259
Asset-backed securities	1,543		1,538		—		—		—		—		1,543		1,538
State and political securities	58,793		60,585		—		—		2,045		2,057		60,838		62,642
Other debt securities	39,759		39,673		14,993		14,540		—		—		54,752		54,213
Total debt securities AFS	$	110,174	$	112,055	$	14,993	$	14,540	$	2,045	$	2,057	$	127,212	$	128,652

Financing Activities

Deposits

Total deposits increased $56,417,000 from December 31, 2015 to September 30, 2016.  The growth was led by an increase in money market deposit accounts from December 31, 2015 to September 30, 2016 of 16.38%.  The increase in core deposits (deposits less time deposits) has provided relationship driven funding for the loan and investment portfolios.  The increase in deposits is the result of our focus on building relationships, not by offering market leading rates. 

Deposit balances and their changes for the periods being discussed follow:

	September 30, 2016				December 31, 2015				Change
(In Thousands)	Amount		% Total		Amount		% Total		Amount			%
Demand deposits	$	295,599	27.16	%	$	280,083	27.15	%	$	15,516		5.54	%
NOW accounts	175,767		16.15		176,078		17.06		(311		)	(0.18	)
Money market deposits	244,138		22.43		209,782		20.33		34,356			16.38
Savings deposits	150,822		13.86		144,561		14.01		6,261			4.33
Time deposits	221,971		20.40		221,376		21.45		595			0.27
Total deposits	$	1,088,297	100.00	%	$	1,031,880	100.00	%	$	56,417		5.47	%

Borrowed Funds

Total borrowed funds decreased 25.47% or $35,059,000 to $102,604,000 at September 30, 2016 compared to $137,663,000 at December 31, 2015.  Short-term borrowings primarily decreased due to growth in deposits and a reduction in the size of the investment portfolio.

40

	September 30, 2016				December 31, 2015				Change
(In Thousands)	Amount		% Total		Amount		% Total		Amount			%
Short-term borrowings:
FHLB repurchase agreements	$	—	—	%	$	28,304	20.56	%	$	(28,304	)	(100.00	)%
Securities sold under agreement to repurchase	11,579		11.29		18,334		13.32		(6,755		)	(36.84	)
Total short-term borrowings	11,579		11.29		46,638		33.88		(35,059		)	(75.17	)
Long-term borrowings:
Long-term FHLB borrowings	90,625		88.32		90,625		65.83		—			—
Long-term capital lease	400		0.39		400		0.29		—			—
Total long-term borrowings	91,025		88.71		91,025		66.12		—			—	%
Total borrowed funds	$	102,604	100.00	%	$	137,663	100.00	%	$	(35,059	)	(25.47	)%

Capital

The adequacy of the Company’s capital is reviewed on an ongoing basis with reference to the size, composition, and quality of the Company’s resources and regulatory guidelines.  Management seeks to maintain a level of capital sufficient to support existing assets and anticipated asset growth, maintain favorable access to capital markets, and preserve high quality credit ratings.

Bank holding companies are required to comply with the Federal Reserve Board’s risk-based capital guidelines.  The risk-based capital rules are designed to make regulatory capital requirements more sensitive to differences in risk profiles among banks and bank holding companies and to minimize disincentives for holding liquid assets.  Specifically, each is required to maintain certain minimum dollar amounts and ratios of common equity tier I risk-based, tier I risk-based, total risk-based, and tier I leverage capital. In addition to the capital requirements, the Federal Deposit Insurance Corporation Improvements Act (FDICIA) established five capital categories ranging from “well capitalized” to “critically undercapitalized.” To be classified as “well capitalized”, common equity tier I risk-based, tier I risked-based, total risk-based, and tier I leverage capital ratios must be at least 6.5%, 8%, 10%, and 5%, respectively.

The Company's capital ratios as of September 30, 2016 and December 31, 2015 were as follows:

	September 30, 2016				December 31, 2015
(In Thousands)	Amount		Ratio		Amount		Ratio
Common Equity Tier I Capital (to Risk-weighted Assets)
Actual	$	124,597	12.737	%	$	121,665	11.240	%
For Capital Adequacy Purposes	44,020		4.500		48,722		4.500
Minimum To Maintain Capital Conservation Buffer At Reporting Date	50,134		5.125		N/A		N/A
To Be Well Capitalized	63,585		6.500		70,377		6.500
Tier I Capital (to Risk-weighted Assets)
Actual	$	124,597	12.737	%	$	121,665	11.240	%
For Capital Adequacy Purposes	58,694		6.000		64,963		6.000
Minimum To Maintain Capital Conservation Buffer At Reporting Date	64,808		6.625		N/A		N/A
To Be Well Capitalized	78,258		8.000		86,617		8.000
Total Capital (to Risk-weighted Assets)
Actual	$	131,419	13.434	%	$	134,067	12.380	%
For Capital Adequacy Purposes	78,258		8.000		86,617		8.000
Minimum To Maintain Capital Conservation Buffer At Reporting Date	84,375		8.625		N/A		N/A
To Be Well Capitalized	97,826		10.000		108,272		10.000
Tier I Capital (to Average Assets)
Actual	$	124,597	9.369	%	$	121,665	9.380	%
For Capital Adequacy Purposes	53,195		4.000		51,862		4.000
To Be Well Capitalized	66,494		5.000		64,828		5.000

41

Jersey Shore State Bank's capital ratios as of September 30, 2016 and December 31, 2015 were as follows:

	September 30, 2016				December 31, 2015
(In Thousands)	Amount		Ratio		Amount		Ratio
Common Equity Tier I Capital (to Risk-weighted Assets)
Actual	$	85,498	11.322	%	$	82,682	10.700	%
For Capital Adequacy Purposes	33,982		4.500		34,773		4.500
Minimum To Maintain Capital Conservation Buffer At Reporting Date	38,701		5.125		N/A		N/A
To Be Well Capitalized	49,085		6.500		50,227		6.500
Tier I Capital (to Risk-weighted Assets)
Actual	$	85,498	11.322	%	$	82,682	10.700	%
For Capital Adequacy Purposes	45,309		6.000		46,363		6.000
Minimum To Maintain Capital Conservation Buffer At Reporting Date	50,029		6.625		N/A		N/A
To Be Well Capitalized	60,412		8.000		61,818		8.000
Total Capital (to Risk-weighted Assets)	-
Actual	$	89,256	11.820	%	$	92,036	11.910	%
For Capital Adequacy Purposes	60,412		8.000		61,818		8.000
Minimum To Maintain Capital Conservation Buffer At Reporting Date	65,130		8.625		N/A		N/A
To Be Well Capitalized	75,513		10.000		77,272		10.000
Tier I Capital (to Average Assets)
Actual	$	85,498	8.862	%	$	82,682	8.660	%
For Capital Adequacy Purposes	38,590		4.000		38,175		4.000
To Be Well Capitalized	48,237		5.000		47,719		5.000

Luzerne Bank's capital ratios as of September 30, 2016 and December 31, 2015 were as follows:

	September 30, 2016				December 31, 2015
(In Thousands)	Amount		Ratio		Amount		Ratio
Common Equity Tier I Capital (to Risk-weighted Assets)
Actual	$	30,924	10.223	%	$	30,549	10.660	%
For Capital Adequacy Purposes	13,612		4.500		12,901		4.500
Minimum To Maintain Capital Conservation Buffer At Reporting Date	15,503		5.125		N/A		N/A
To Be Well Capitalized	19,662		6.500		18,635		6.500
Tier I Capital (to Risk-weighted Assets)
Actual	$	30,924	10.223	%	$	30,549	10.660	%
For Capital Adequacy Purposes	18,150		6.000		17,201		6.000
Minimum To Maintain Capital Conservation Buffer At Reporting Date	20,040		6.625		N/A		N/A
To Be Well Capitalized	24,200		8.000		22,935		8.000
Total Capital (to Risk-weighted Assets)
Actual	$	33,306	11.010	%	$	33,274	11.610	%
For Capital Adequacy Purposes	24,200		8.000		22,935		8.000
Minimum To Maintain Capital Conservation Buffer At Reporting Date	26,091		8.625		N/A		N/A
To Be Well Capitalized	30,251		10.000		28,669		10.000
Tier I Capital (to Average Assets)
Actual	$	30,924	8.575	%	$	30,549	8.900	%
For Capital Adequacy Purposes	14,425		4.000		13,725		4.000
To Be Well Capitalized	18,031		5.000		17,157		5.000

In July 2013, the federal bank regulatory agencies adopted revisions to the agencies’ capital adequacy guidelines and prompt corrective action rules, which were designed to enhance such requirements and implement the revised standards of the Basel Committee on Banking Supervision, commonly referred to as Basel III.  The July 2013 final rules generally implement higher

42

minimum capital requirements, add a new common equity tier 1 capital requirement, and establish criteria that instruments must meet to be considered common equity tier 1 capital, additional tier 1 capital or tier 2 capital.  The new minimum capital to risk-adjusted assets requirements are a common equity tier 1 capital ratio of 4.5% (6.5% to be considered “well capitalized”) and a tier 1 capital ratio of 6.0%, increased from 4.0% (and increased from 6.0% to 8.0% to be considered “well capitalized”); the total capital ratio remains at 8.0% under the new rules (10.0% to be considered “well capitalized”).  Under the new rules, in order to avoid limitations on capital distributions (including dividend payments and certain discretionary bonus payments to executive officers), a banking organization must hold a capital conservation buffer comprised of common equity tier 1 capital above its minimum risk-based capital requirements in an amount greater than 2.5% of total risk-weighted assets.  The new minimum capital requirements were effective beginning on January 1, 2015.  The capital contribution buffer requirements phase in over a three-year period beginning January 1, 2016. The Company and the Banks will continue to analyze these new rules and their effects on the business, operations and capital levels of the Company and the Banks.

Liquidity; Interest Rate Sensitivity and Market Risk

The asset/liability committee addresses the liquidity needs of the Company to ensure that sufficient funds are available to meet credit demands and deposit withdrawals as well as to the placement of available funds in the investment portfolio.  In assessing liquidity requirements, equal consideration is given to the current position as well as the future outlook.

The following liquidity measures are monitored for compliance and were within the limits cited at September 30, 2016:

1. Net Loans to Total Assets, 85% maximum

2. Net Loans to Total Deposits, 100% maximum

3. Cumulative 90 day Maturity GAP %, +/- 20% maximum

4. Cumulative 1 Year Maturity GAP %, +/- 25% maximum

Fundamental objectives of the Company’s asset/liability management process are to maintain adequate liquidity while minimizing interest rate risk.  The maintenance of adequate liquidity provides the Company with the ability to meet its financial obligations to depositors, loan customers, and shareholders.  Additionally, it provides funds for normal operating expenditures and business opportunities as they arise.  The objective of interest rate sensitivity management is to increase net interest income by managing interest sensitive assets and liabilities in such a way that they can be repriced in response to changes in market interest rates.

The Banks, like other financial institutions, must have sufficient funds available to meet liquidity needs for deposit withdrawals, loan commitments and originations, and expenses.  In order to control cash flow, the Banks estimate future cash flows from deposits, loan payments, and investment security payments.  The primary sources of funds are deposits, principal and interest payments on loans and investment securities, FHLB borrowings, and brokered deposits.  Management believes the Banks have adequate resources to meet their normal funding requirements.

Management monitors the Company’s liquidity on both a long and short-term basis, thereby providing management necessary information to react to current balance sheet trends.  Cash flow needs are assessed and sources of funds are determined.  Funding strategies consider both customer needs and economical cost.  Both short and long-term funding needs are addressed by maturities and sales of available for sale and trading investment securities, loan repayments and maturities, and liquidating money market investments such as federal funds sold.  The use of these resources, in conjunction with access to credit provides core funding to satisfy depositor, borrower, and creditor needs.

Management monitors and determines the desirable level of liquidity.  Consideration is given to loan demand, investment opportunities, deposit pricing and growth potential, as well as the current cost of borrowing funds.  The Company has a total current maximum borrowing capacity at the FHLB of $530,001,000.  In addition to this credit arrangement, the Company has additional lines of credit with correspondent banks of $45,366,000.  Management believes it has sufficient liquidity to satisfy estimated short-term and long-term funding needs.  FHLB borrowings totaled $90,625,000 as of September 30, 2016.

Interest rate sensitivity, which is closely related to liquidity management, is a function of the repricing characteristics of the Company’s portfolio of assets and liabilities.  Asset/liability management strives to match maturities and rates between loan and investment security assets with the deposit liabilities and borrowings that fund them.  Successful asset/liability management results in a balance sheet structure which can cope effectively with market rate fluctuations. The matching process by segments both assets and liabilities into future time periods (usually 12 months, or less) based upon when repricing can be effected.  Repriceable assets are subtracted from repriceable liabilities, for a specific time period to determine the “gap”, or difference. Once known, the gap is managed based on predictions about future market interest rates.  Intentional mismatching, or gapping, can enhance net interest income if market rates move as predicted.  However, if market rates behave in a manner contrary to predictions, net interest income will suffer.  Gaps, therefore, contain an element of risk and must be prudently managed.  In addition to gap management,

43

the Company has an asset/liability management policy which incorporates a market value at risk calculation which is used to determine the effects of interest rate movements on shareholders’ equity and a simulation analysis to monitor the effects of interest rate changes on the Company’s balance sheet.

The Company currently maintains a GAP position of being asset sensitive.  The Company has strategically taken this position as it has decreased the duration of the earning asset portfolio by adding quality short and intermediate term loans such as home equity loans and the selling of long-term municipal bonds.  Lengthening of the liability portfolio is being undertaken to build protection in a rising rate environment.

A market value at risk calculation is utilized to monitor the effects of interest rate changes on the Company’s balance sheet and more specifically shareholders’ equity.  The Company does not manage the balance sheet structure in order to maintain compliance with this calculation.  The calculation serves as a guideline with greater emphases placed on interest rate sensitivity.  Changes to calculation results from period to period are reviewed as changes in results could be a signal of future events.  As of the most recent analysis, the results of the market value at risk calculation were within established guidelines due to the strategic direction being taken.

Interest Rate Sensitivity

In this analysis the Company examines the result of a 100, 200, 300, and 400 basis point change in market interest rates and the effect on net interest income. It is assumed that the change is instantaneous and that all rates move in a parallel manner.  Assumptions are also made concerning prepayment speeds on mortgage loans and mortgage securities.

The following is a rate shock forecast for the twelve month period ending September 30,2017 assuming a static balance sheet as of September 30, 2016.

	Parallel Rate Shock in Basis Points
(In Thousands)	-200			-100			Static		+100			+200			+300			+400
Net interest income	$	36,554		$	38,986		$	41,356	$	43,526		$	45,691		$	47,600		$	49,325
Change from static	(4,802		)	(2,370		)	—		2,170			4,335			6,244			7,969
Percent change from static	-11.61		%	-5.73		%	—		5.25		%	10.48		%	15.10		%	19.27		%

The model utilized to create the report presented above makes various estimates at each level of interest rate change regarding cash flow from principal repayment on loans and mortgage-backed securities and/or call activity on investment securities.  Actual results could differ significantly from these estimates which would result in significant differences in the calculated projected change.  In addition, the limits stated above do not necessarily represent the level of change under which management would undertake specific measures to realign its portfolio in order to reduce the projected level of change.  Generally, management believes the Company is well positioned to respond expeditiously when the market interest rate outlook changes.

Inflation

The asset and liability structure of a financial institution is primarily monetary in nature.  Therefore, interest rates rather than inflation have a more significant impact on the Company’s performance.  Interest rates are not always affected in the same direction or magnitude as prices of other goods and services, but are reflective of fiscal policy initiatives or economic factors which are not measured by a price index.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

Market risk for the Company is comprised primarily of interest rate risk exposure and liquidity risk.  Interest rate risk and liquidity risk management is performed at both the level of the Company and the Banks.  The Company’s interest rate sensitivity is monitored by management through selected interest rate risk measures produced by an independent third party.  There have been no substantial changes in the Company’s gap analysis or simulation analysis compared to the information provided in the Annual Report on Form 10-K for the period ended December 31, 2015.  Additional information and details are provided in the “Liquidity, Interest Rate Sensitivity, and Market Risk” section of “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Generally, management believes the Company is well positioned to respond in a timely manner when the market interest rate outlook changes.

44

Item 4.  Controls and Procedures

Evaluation of Disclosure Controls and Procedures

An analysis was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of September 30, 2016.

Changes in Internal Control over Financial Reporting

There were no changes in the Company’s internal control over financial reporting that occurred during the quarter ended September 30, 2016, that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

45

Part II.  OTHER INFORMATION

Item 1.Legal Proceedings

None.

Item 1A.  Risk Factors

There are no material changes to the risk factors set forth in Part I, Item 1A, “Risk Factors,” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2015.  Please refer to that section for disclosures regarding the risks and uncertainties related to the Company’s business.

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds

The following table provides certain information with respect to the Company's repurchase of common stock during the quarter ended September 30, 2016.

Period	Total Number of Shares (or Units) Purchased	Average Price Paid per Share (or Units) Purchased		Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs	Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs
Month #1 (July 1 - July 31, 2016)	—	$	—	—	390,144
Month #2 (August 1 - August 31, 2016)	—	—		—	390,144
Month #3 (September 1 - September 30, 2016)	—	—		—	390,144

On April 25, 2016, the Board of Directors extended the previously approved authorization to repurchase up to 482,000 shares, or approximately 10%, of the outstanding shares of the Company for an additional year to April 30, 2017.  As of September 30, 2016 there have been 91,856 shares repurchased under this plan.

Item 3.Defaults Upon Senior Securities

None.

Item 4.Mine Safety Disclosures

Not applicable.

Item 5.Other Information

None.

46

Item 6.Exhibits

3(i)	Articles of Incorporation of the Registrant, as presently in effect (incorporated by reference to Exhibit 3(i) of the Registrant’s Quarterly Report on Form 10-Q for the period ended March 31, 2012).
3(ii)	Bylaws of the Registrant (incorporated by reference to Exhibit 3(ii) of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2011).
31(i)	Rule 13a-14(a)/Rule 15d-14(a) Certification of Chief Executive Officer.
31(ii)	Rule 13a-14(a)/Rule 15d-14(a) Certification of Chief Financial Officer.
32(i)	Section 1350 Certification of Chief Executive Officer.
32(ii)	Section 1350 Certification of Chief Financial Officer.
101	Interactive data file containing the following financial statements formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheet at September 30, 2016 and December 31, 2015; (ii) the Consolidated Statement of Income for the three and nine months ended September 30, 2016 and 2015; (iii) Consolidated Statement of Comprehensive Income for the three and nine months ended September 30, 2016 and 2015; (iv) the Consolidated Statement of Shareholders’ Equity for the nine months ended September 30, 2016 and 2015; (v) the Consolidated Statement of Cash Flows for the nine months ended September 30, 2016 and 2015; and (vi) the Notes to Consolidated Financial Statements. As provided in Rule 406T of Regulation S-T, this interactive data file shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, and shall not be deemed “filed” or part of any registration statement or prospectus for purposes of Section 11 or 12 under the Securities Act of 1933, or otherwise subject to liability under those sections.

47

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		PENNS WOODS BANCORP, INC.
		(Registrant)
Date:	November 9, 2016	/s/ Richard A. Grafmyre
		Richard A. Grafmyre, President and Chief Executive Officer
		(Principal Executive Officer)
Date:	November 9, 2016	/s/ Brian L. Knepp
		Brian L. Knepp, Senior Vice President and Chief Financial Officer
		(Principal Financial Officer and Principal Accounting
		Officer)

48

EXHIBIT INDEX

Exhibit 31(i)	Rule 13a-14(a)/Rule 15d-14(a) Certification of Chief Executive Officer
Exhibit 31(ii)	Rule 13a-14(a)/Rule 15d-14(a) Certification of Chief Financial Officer
Exhibit 32(i)	Section 1350 Certification of Chief Executive Officer
Exhibit 32(ii)	Section 1350 Certification of Chief Financial Officer
Exhibit 101	Interactive data file containing the following financial statements formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheet at September 30, 2016 and December 31, 2015; (ii) the Consolidated Statement of Income for the three and nine months ended September 30, 2016 and 2015; (iii) Consolidated Statement of Comprehensive Income for the three and nine months ended September 30, 2016 and 2015; (iv) the Consolidated Statement of Shareholders’ Equity for the nine months ended September 30, 2016 and 2015; (v) the Consolidated Statement of Cash Flows for the nine months ended September 30, 2016 and 2015; and (vi) the Notes to Consolidated Financial Statements. As provided in Rule 406T of Regulation S-T, this interactive data file shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, and shall not be deemed “filed” or part of any registration statement or prospectus for purposes of Section 11 or 12 under the Securities Act of 1933, or otherwise subject to liability under those sections.

49

EX-31.1

Exhibit 31(i)

Rule 13a-14(a)/Rule 15d-14(a) Certification of Chief Executive Officer

I, Richard A. Grafmyre, certify that:

1.I have reviewed this quarterly report on Form 10-Q of Penns Woods Bancorp, Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)), and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:

a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing equivalent functions):

a. all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:    November 9, 2016	/s/ Richard A. Grafmyre
	Richard A. Grafmyre
	Chief Executive Officer
	(Principal Executive Officer)

EX-31.2

Exhibit 31(ii)

Rule 13a-14(a)/Rule 15d-14(a) Certification of Chief Financial Officer

I, Brian L. Knepp, certify that:

1.I have reviewed this quarterly report on Form 10-Q of Penns Woods Bancorp, Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)), and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing equivalent functions):

a. all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:    November 9, 2016	/s/ Brian L. Knepp
	Brian L. Knepp
	Senior Vice President and Chief Financial Officer
	(Principal Financial Officer and Principal Accounting Officer)

EX-32.1

Exhibit 32 (i)

CERTIFICATION SECTION 1350

In connection with the Quarterly Report of Penns Woods Bancorp, Inc. (the “Company”) on Form 10-Q for the period ending September 30, 2016, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Richard A. Grafmyre, Chief Executive Officer, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

/s/ Richard A. Grafmyre

Richard A. Grafmyre

Chief Executive Officer

November 9, 2016

EX-32.2

Exhibit 32 (ii)

CERTIFICATION SECTION 1350

In connection with the Quarterly Report of Penns Woods Bancorp, Inc. (the “Company”) on Form 10-Q for the period ending September 30, 2016, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Brian L. Knepp, Chief Financial Officer, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

/s/ Brian L. Knepp

Brian L. Knepp

Senior Vice President and Chief Financial Officer

November 9, 2016

XML

Document and Entity Information - shares	9 Months Ended
	Sep. 30, 2016	Nov. 01, 2016
Document and Entity Information
Entity Registrant Name	PENNS WOODS BANCORP INC
Entity Central Index Key	0000716605
Document Type	10-Q
Document Period End Date	Sep. 30, 2016
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		4,734,310
Document Fiscal Year Focus	2016
Document Fiscal Period Focus	Q3

XML

CONSOLIDATED BALANCE SHEET (UNAUDITED) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
ASSETS:
Noninterest-bearing balances	$ 23,487	$ 22,044
Interest-bearing balances in other financial institutions	36,694	752
Total cash and cash equivalents	60,181	22,796
Investment securities, available for sale, at fair value	141,057	176,157
Investment securities, trading	0	73
Loans held for sale	2,160	757
Loans	1,069,480	1,045,207
Allowance for loan losses	(12,718)	(12,044)
Loans, net	1,056,762	1,033,163
Premises and equipment, net	22,985	21,830
Accrued interest receivable	3,800	3,686
Bank-owned life insurance	27,176	26,667
Investment in limited partnerships	658	899
Goodwill	17,104	17,104
Intangibles	1,889	1,240
Deferred tax asset	7,404	8,990
Other assets	6,236	6,695
TOTAL ASSETS	1,347,412	1,320,057
LIABILITIES:
Interest-bearing deposits	792,698	751,797
Noninterest-bearing deposits	295,599	280,083
Total deposits	1,088,297	1,031,880
Short-term borrowings	11,579	46,638
Long-term borrowings	91,025	91,025
Accrued interest payable	481	426
Other liabilities	16,095	13,809
TOTAL LIABILITIES	1,207,477	1,183,778
SHAREHOLDERS’ EQUITY:
Preferred stock, no par value, 3,000,000 shares authorized; no shares issued	0	0
Common stock, par value $8.33, 15,000,000 shares authorized; 5,006,601 and 5,004,984 shares issued	41,721	41,708
Additional paid-in capital	50,050	49,992
Retained earnings	60,889	58,038
Accumulated other comprehensive loss:
Net unrealized gain on available for sale securities	1,489	258
Defined benefit plan	(3,980)	(4,057)
Treasury stock at cost, 272,452 and 257,852 shares	(10,234)	(9,660)
TOTAL SHAREHOLDERS’ EQUITY	139,935	136,279
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$ 1,347,412	$ 1,320,057

XML

CONSOLIDATED BALANCE SHEET (UNAUDITED) (Parenthetical) - $ / shares	Sep. 30, 2016	Dec. 31, 2015
Statement of Financial Position [Abstract]
Preferred stock, shares authorized (in shares)	3,000,000	3,000,000
Preferred stock, shares issued (in shares)	0	0
Common stock, par value (in dollars per share)	$ 8.33	$ 8.33
Common stock, shares authorized (in shares)	15,000,000	15,000,000
Common stock, shares issued (in shares)	5,006,601	5,004,984
Treasury stock (in shares)	272,452	257,852

XML

CONSOLIDATED STATEMENT OF INCOME (UNAUDITED) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
INTEREST AND DIVIDEND INCOME:
Loans, including fees	$ 10,541	$ 9,862	$ 31,362	$ 28,937
Investment securities:
Taxable	601	829	1,825	2,728
Tax-exempt	329	676	1,203	2,187
Dividend and other interest income	189	156	666	597
TOTAL INTEREST AND DIVIDEND INCOME	11,660	11,523	35,056	34,449
INTEREST EXPENSE:
Deposits	909	800	2,624	2,328
Short-term borrowings	7	31	41	78
Long-term borrowings	497	458	1,481	1,476
TOTAL INTEREST EXPENSE	1,413	1,289	4,146	3,882
NET INTEREST INCOME	10,247	10,234	30,910	30,567
PROVISION FOR LOAN LOSSES	258	520	866	1,820
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES	9,989	9,714	30,044	28,747
NON-INTEREST INCOME:
Service charges	585	621	1,678	1,772
Net securities gains, available for sale	253	526	1,174	1,713
Net securities gains (losses), trading	8	(33)	54	(37)
Bank-owned life insurance	172	182	516	541
Gain on sale of loans	658	524	1,691	1,305
Insurance commissions	198	185	604	623
Brokerage commissions	290	297	817	836
Other	918	835	2,723	2,701
TOTAL NON-INTEREST INCOME	3,082	3,137	9,257	9,454
NON-INTEREST EXPENSE:
Salaries and employee benefits	4,507	4,302	13,433	13,073
Occupancy	544	529	1,630	1,721
Furniture and equipment	662	686	2,042	1,924
Pennsylvania shares tax	220	244	698	711
Amortization of investment in limited partnerships	46	165	266	496
Federal Deposit Insurance Corporation deposit insurance	202	209	670	654
Marketing	173	160	568	434
Intangible amortization	90	73	276	235
Other	2,295	2,162	6,882	6,171
TOTAL NON-INTEREST EXPENSE	8,739	8,530	26,465	25,419
INCOME BEFORE INCOME TAX PROVISION	4,332	4,321	12,836	12,782
INCOME TAX PROVISION	1,273	957	3,307	2,630
NET INCOME	$ 3,059	$ 3,364	$ 9,529	$ 10,152
EARNINGS PER SHARE - BASIC AND DILUTED (in dollars per share)	$ 0.65	$ 0.71	$ 2.01	$ 2.12
WEIGHTED AVERAGE SHARES OUTSTANDING - BASIC AND DILUTED (in shares)	4,733,800	4,761,576	4,735,844	4,780,776
DIVIDENDS DECLARED PER SHARE (in dollars per share)	$ 0.47	$ 0.47	$ 1.41	$ 1.41

XML

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Statement of Comprehensive Income [Abstract]
Net Income	$ 3,059	$ 3,364	$ 9,529	$ 10,152
Other comprehensive income (loss):
Change in unrealized gain (loss) on available for sale securities	(276)	592	3,039	(579)
Tax effect	94	(201)	(1,032)	198
Net realized gain on available for sale securities included in net income	(253)	(526)	(1,174)	(1,713)
Tax effect	86	179	398	582
Amortization of unrecognized pension and post-retirement items	39	39	117	119
Tax effect	(13)	(13)	(40)	(40)
Total other comprehensive income (loss)	(323)	70	1,308	(1,433)
Comprehensive income	$ 2,736	$ 3,434	$ 10,837	$ 8,719

XML

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED) - USD ($) $ in Thousands	Total	COMMON STOCK	ADDITIONAL PAID-IN CAPITAL	RETAINED EARNINGS	ACCUMULATED OTHER COMPREHENSIVE LOSS	TREASURY STOCK
Beginning Balance (in shares) at Dec. 31, 2014		5,002,649
Beginning Balance at Dec. 31, 2014	$ 135,967	$ 41,688	$ 49,896	$ 53,107	$ (1,667)	$ (7,057)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income	10,152			10,152
Other comprehensive loss	(1,433)				(1,433)
Dividends declared	(6,736)			(6,736)
Common shares issued for employee stock purchase plan (in shares)		1,723
Common shares issued for employee stock purchase plan	77	$ 14	63
Purchase of treasury stock	(2,450)					(2,450)
Ending Balance (in shares) at Sep. 30, 2015		5,004,372
Ending Balance at Sep. 30, 2015	135,577	$ 41,702	49,959	56,523	(3,100)	(9,507)
Beginning Balance (in shares) at Dec. 31, 2015		5,004,984
Beginning Balance at Dec. 31, 2015	136,279	$ 41,708	49,992	58,038	(3,799)	(9,660)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income	9,529			9,529
Other comprehensive loss	1,308				1,308
Dividends declared	(6,678)			(6,678)
Common shares issued for employee stock purchase plan (in shares)		1,617
Common shares issued for employee stock purchase plan	71	$ 13	58
Purchase of treasury stock	(574)					(574)
Ending Balance (in shares) at Sep. 30, 2016		5,006,601
Ending Balance at Sep. 30, 2016	$ 139,935	$ 41,721	$ 50,050	$ 60,889	$ (2,491)	$ (10,234)

XML

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED) (Parenthetical) - $ / shares	9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015
Statement of Stockholders' Equity [Abstract]
Dividends declared, per share (in dollars per share)	$ 1.41	$ 1.41
Purchase of treasury stock (in shares)	14,600	56,310

XML

CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015
OPERATING ACTIVITIES:
Net Income	$ 9,529	$ 10,152
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	2,394	2,478
Amortization of intangible assets	276	235
Provision for loan losses	866	1,820
Accretion and amortization of investment security discounts and premiums	657	644
Net securities gains, available for sale	(1,174)	(1,713)
Originations of loans held for sale	(50,824)	(41,762)
Proceeds of loans held for sale	51,112	42,588
Gain on sale of loans	(1,691)	(1,305)
Net securities (gains) losses, trading	(54)	37
Proceeds from the sale of trading securities	3,723	490
Purchases of trading securities	(3,596)	(590)
Earnings on bank-owned life insurance	(516)	(541)
Decrease in deferred tax asset	952	262
Other, net	508	(1,486)
Net cash provided by operating activities	12,162	11,309
INVESTING ACTIVITIES:
Proceeds from sales of available for sale securities	42,180	43,051
Proceeds from calls and maturities of available for sale securities	19,267	14,832
Purchases of available for sale securities	(24,040)	(26,916)
Net increase in loans	(24,548)	(87,324)
Acquisition of premises and equipment	(2,347)	(1,491)
Proceeds from the sale of foreclosed assets	486	1,613
Purchase of bank-owned life insurance	(27)	(30)
Proceeds from redemption of regulatory stock	2,644	8,801
Purchases of regulatory stock	(2,569)	(10,518)
Net cash provided by (used for) investing activities	11,046	(57,982)
FINANCING ACTIVITIES:
Net increase in interest-bearing deposits	40,901	18,912
Net (decrease) increase in noninterest-bearing deposits	15,516	4,470
Proceeds from long-term borrowings	0	30,625
Repayment of long-term borrowings	0	(10,750)
Net (decrease) increase in short-term borrowings	(35,059)	10,872
Dividends paid	(6,678)	(6,736)
Issuance of common stock	71	77
Purchases of treasury stock	(574)	(2,450)
Net cash provided by provided by financing activities	14,177	45,020
NET INCREASE IN CASH AND CASH EQUIVALENTS	37,385	(1,653)
CASH AND CASH EQUIVALENTS, BEGINNING	22,796	19,908
CASH AND CASH EQUIVALENTS, ENDING	60,181	18,255
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid	4,091	3,803
Income taxes paid	3,050	2,000
Transfer of loans to foreclosed real estate	$ 83	$ 340

XML

Basis of Presentation

9 Months Ended

Sep. 30, 2016

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Basis of Presentation

Basis of Presentation

The consolidated financial statements include the accounts of Penns Woods Bancorp, Inc. (the “Company”) and its wholly-owned subsidiaries: Woods Investment Company, Inc., Woods Real Estate Development Company, Inc., Luzerne Bank, and Jersey Shore State Bank (Jersey Shore State Bank and Luzerne Bank are referred to together as the “Banks”) and Jersey Shore State Bank’s wholly-owned subsidiary, The M Group, Inc. D/B/A The Comprehensive Financial Group (“The M Group”).  All significant inter-company balances and transactions have been eliminated in the consolidation.

The interim financial statements are unaudited, but in the opinion of management reflect all adjustments necessary for the fair presentation of results for such periods.  The results of operations for any interim period are not necessarily indicative of results for the full year.  These financial statements should be read in conjunction with the financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015.

The accounting policies followed in the presentation of interim financial results are the same as those followed on an annual basis.  These policies are presented on pages 40 through 48 of the Form 10-K for the year ended December 31, 2015.

In reference to the attached financial statements, all adjustments are of a normal recurring nature pursuant to Rule 10-01(b) (8) of Regulation S-X.

XML

Accumulated Other Comprehensive Loss

9 Months Ended

Sep. 30, 2016

Comprehensive Income (Loss), Net of Tax, Attributable to Parent [Abstract]

Accumulated Other Comprehensive Loss

Accumulated Other Comprehensive Loss

The changes in accumulated other comprehensive loss by component as of September 30, 2016 and 2015 were as follows:

	Three Months Ended September 30, 2016									Three Months Ended September 30, 2015
(In Thousands)	Net Unrealized Gain on Available for Sale Securities			Defined Benefit  Plan			Total			Net Unrealized Gain on Available for Sale Securities			Defined Benefit  Plan			Total
Beginning balance	$	1,838		$	(4,006	)	$	(2,168	)	$	1,374		$	(4,544	)	$	(3,170	)
Other comprehensive (loss) income before reclassifications	(182		)	—			$	(182	)	391			—			391
Amounts reclassified from accumulated other comprehensive (loss) income	(167		)	26			$	(141	)	(347		)	26			(321		)
Net current-period other comprehensive (loss) income	(349		)	26			$	(323	)	44			26			70
Ending balance	$	1,489		$	(3,980	)	$	(2,491	)	$	1,418		$	(4,518	)	$	(3,100	)

	Nine Months Ended September 30, 2016									Nine Months Ended September 30, 2015
(In Thousands)	Net Unrealized Gain on Available for Sale Securities			Defined Benefit  Plan			Total			Net Unrealized Gain (Los) on Available for Sale Securities			Defined Benefit  Plan			Total
Beginning balance	$	258		$	(4,057	)	$	(3,799	)	$	2,930		$	(4,597	)	$	(1,667	)
Other comprehensive income (loss) before reclassifications	2,007			—			2,007			(381		)	—			(381		)
Amounts reclassified from accumulated other comprehensive (loss) income	(776		)	77			(699		)	(1,131		)	79			(1,052		)
Net current-period other comprehensive income (loss)	1,231			77			1,308			(1,512		)	79			(1,433		)
Ending balance	$	1,489		$	(3,980	)	$	(2,491	)	$	1,418		$	(4,518	)	$	(3,100	)

The reclassifications out of accumulated other comprehensive loss as of September 30, 2016 and 2015 were as follows:

Details about Accumulated Other Comprehensive Loss Components	Amount Reclassified from Accumulated Other Comprehensive Loss						Affected Line Item  in the Consolidated  Statement of Income
	Three Months Ended September 30, 2016			Three Months Ended September 30, 2015
Net unrealized gain on available for sale securities	$	253		$	526		Net securities gains, available for sale
Income tax effect	(86		)	(179		)	Income tax provision
Total reclassifications for the period	$	167		$	347		Net of tax
Net unrecognized pension costs	$	(39	)	$	(39	)	Salaries and employee benefits
Income tax effect	13			13			Income tax provision
Total reclassifications for the period	$	(26	)	$	(26	)	Net of tax

Details about Accumulated Other Comprehensive Loss Components	Amount Reclassified from Accumulated Other Comprehensive Loss						Affected Line Item  in the Consolidated  Statement of Income
	Six Months Ended June 30, 2016			Nine Months Ended September 30, 2015
Net unrealized gain on available for sale securities	$	1,174		$	1,713		Net securities gains, available for sale
Income tax effect	(398		)	(582		)	Income tax provision
Total reclassifications for the period	$	776		$	1,131		Net of tax
Net unrecognized pension costs	$	(117	)	$	(119	)	Salaries and employee benefits
Income tax effect	40			40			Income tax provision
Total reclassifications for the period	$	(77	)	$	(79	)	Net of tax

XML

Recent Accounting Pronouncements

9 Months Ended

Sep. 30, 2016

New Accounting Pronouncements and Changes in Accounting Principles [Abstract]

Recent Accounting Pronouncements

Recent Accounting Pronouncements

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (a new revenue recognition standard). The core principle of the update is that a company will recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, this update specifies the accounting for certain costs to obtain or fulfill a contract with a customer and expands disclosure requirements for revenue recognition. This update is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. The Company is currently evaluating the impact the adoption of the standard will have on the Company's financial position or results of operation.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. This update applies to all entities that hold financial assets or owe financial liabilities and is intended to provide more useful information on the recognition, measurement, presentation, and disclosure of financial instruments. Among other things, this update (a) requires equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income; (b) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; (c) eliminates the requirement to disclose the fair value of financial instruments measured at amortized cost for entities that are not public business entities; (d) eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; (e) requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; (f) requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments; (g) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements; and (h) clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. For public business entities, the amendments in this update are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. For all other entities including not-for-profit entities and employee benefit plans within the scope of Topics 960 through 965 on plan accounting, the amendments in this update are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. All entities that are not public business entities may adopt the amendments in this update earlier as of the fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The standard requires lessees to recognize the assets and liabilities that arise from leases on the balance sheet.  A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term.  A short-term lease is defined as one in which: (a) the lease term is 12 months or less, and (b) there is not an option to purchase the underlying asset that the lessee is reasonably certain to exercise. For short-term leases, lessees may elect to recognize lease payments over the lease term on a straight-line basis. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2018, and interim periods within those years. For all other entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2019, and for interim periods within fiscal years beginning after December 15, 2020. The amendments should be applied at the beginning of the earliest period presented using a modified retrospective approach with earlier application permitted as of the beginning of an interim or annual reporting period. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

In March 2016, the FASB issued ASU 2016-04, Liabilities - Extinguishments of Liabilities (Subtopic 405-20). The standard provides that liabilities related to the sale of prepaid stored-value products within the scope of this Update are financial liabilities. The amendments in the Update provide a narrow scope exception to the guidance in Subtopic 405-20 to require that breakage for those liabilities be accounted for consistent with the breakage guidance in Topic 606. The amendments in this update are effective for public business entities, certain not-for-profit entities, and certain employee benefit plans for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. For all other entities, the amendments are effective for financial statements issued for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. Earlier application is permitted, including adoption in an interim period. This update is not expected to have a significant impact on the Company’s financial statements.

In March 2016, the FASB issued ASU 2016-05, Derivatives and Hedging (Topic 815). The amendments in this update apply to all reporting entities for which there is a change in the counterparty to a derivative instrument that has been designated as a heading instrument under Topic 815. The standards in this update clarify that a change in the counterparty to a derivative instrument that has been designated as the hedging instrument under Topic 815does not, in and of itself, require designation of that hedging relationship provided that all other hedge accounting criteria continue to be met. For public business entities, the amendments in this update are effective for financial statements issued for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. For all other entities, the amendments in this update are effective for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within fiscal years beginning after December 15, 2018. An entity has an option to apply the amendments in this update on either a prospective basis or a modified retrospective basis. Early adoption is permitted, including adoption in an interim period. This update is not expected to have a significant impact on the Company’s financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which changes the impairment model for most financial assets. This ASU is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. The underlying premise of the ASU is that financial assets measured at amortized cost should be presented at the net amount expected to be collected, through an allowance for credit losses that is deducted from the amortized cost basis. The allowance for credit losses should reflect management’s current estimate of credit losses that are expected to occur over the remaining life of a financial asset. The income statement will be effected for the measurement of credit losses for newly recognized financial assets, as well as the expected increases or decreases of expected credit losses that have taken place during the period. ASU 2016-13 is effective for annual and interim periods beginning after December 15, 2019, and early adoption is permitted for annual and interim periods beginning after December 15, 2018. With certain exceptions, transition to the new requirements will be through a cumulative effect adjustment to opening retained earnings as of the beginning of the first reporting period in which the guidance is adopted. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”), which addresses eight specific cash flow issues with the objective of reducing diversity in practice. Among these include recognizing cash payments for debt prepayment or debt extinguishment as cash outflows for financing activities; cash proceeds received from the settlement of insurance claims should be classified on the basis of the related insurance coverage; and cash proceeds received from the settlement of bank-owned life insurance policies should be classified as cash inflows from investing activities while the cash payments for premiums on bank-owned policies may be classified as cash outflows for investing activities, operating activities, or a combination of investing and operating activities. The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity that elects early adoption must adopt all of the amendments in the same period. The amendments in this Update should be applied using a retrospective transition method to each period presented. If it is impracticable to apply the amendments retrospectively for some of the issues, the amendments for those issues would be applied prospectively as of the earliest date practicable. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s statement of cash flows.

XML

Per Share Data

9 Months Ended

Sep. 30, 2016

Earnings Per Share [Abstract]

Per Share Data

Per Share Data

There are no convertible securities which would affect the denominator in calculating basic and dilutive earnings per share.  There are 31,000 stock options outstanding, however, since the strike price of $42.03 is greater than the average closing market price the options are not included in the denominator when calculating basic and dilutive earnings per share. Net income as presented on the consolidated statement of income will be used as the numerator.  The following table sets forth the composition of the weighted average common shares (denominator) used in the basic and dilutive earnings per share computation.

	Three Months Ended September 30,				Nine Months Ended September 30,
	2016		2015		2016		2015
Weighted average common shares issued	5,006,252		5,003,979		5,005,707		5,003,396
Weighted average treasury stock shares	(272,452	)	(242,403	)	(269,863	)	(222,620	)
Weighted average common shares and common stock equivalents used to calculate basic and diluted earnings per share	4,733,800		4,761,576		4,735,844		4,780,776

XML

Investment Securities

9 Months Ended

Sep. 30, 2016

Investments, Debt and Equity Securities [Abstract]

Investment Securities

Investment Securities

The amortized cost and fair values of investment securities available for sale at September 30, 2016 and December 31, 2015 are as follows:

	September 30, 2016
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
(In Thousands)	Cost		Gains		Losses			Value
Available for sale (AFS)
U.S. Government and agency securities	$	—	$	—	$	—		$	—
Mortgage-backed securities	10,079		242		(62		)	10,259
Asset-backed securities	1,543		—		(5		)	1,538
State and political securities	60,838		1,807		(3		)	62,642
Other debt securities	54,752		689		(1,228		)	54,213
Total debt securities	127,212		2,738		(1,298		)	128,652
Financial institution equity securities	9,822		951		—			10,773
Other equity securities	1,767		13		(148		)	1,632
Total equity securities	11,589		964		(148		)	12,405
Total investment securities AFS	$	138,801	$	3,702	$	(1,446	)	$	141,057

	December 31, 2015
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
(In Thousands)	Cost		Gains		Losses			Value
Available for sale (AFS)
U.S. Government and agency securities	$	3,586	$	—	$	(37	)	$	3,549
Mortgage-backed securities	9,785		284		(60		)	10,009
Asset-backed securities	1,960		—		(20		)	1,940
State and political securities	84,992		1,797		(234		)	86,555
Other debt securities	59,832		185		(2,245		)	57,772
Total debt securities	160,155		2,266		(2,596		)	159,825
Financial institution equity securities	10,397		1,100		(14		)	11,483
Other equity securities	5,214		70		(435		)	4,849
Total equity securities	15,611		1,170		(449		)	16,332
Total investment securities AFS	$	175,766	$	3,436	$	(3,045	)	$	176,157

The amortized cost and fair values of trading investment securities at September 30, 2016 and December 31, 2015 are as follows.

	September 30, 2016
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
(In Thousands)	Cost		Gains		Losses		Value
Trading
Financial institution equity securities	$	—	$	—	$	—	$	—
Total trading securities	$	—	$	—	$	—	$	—

	December 31, 2015
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
(In Thousands)	Cost		Gains		Losses			Value
Trading
Financial institution equity securities	$	78	$	—	$	(5	)	$	73
Total trading securities	$	78	$	—	$	(5	)	$	73

Total net realized trading gains of $8,000 and $54,000 for the three and nine month periods ended September 30, 2016 compared to the net realized trading loss of $33,000 and $37,000 for the three and nine month periods ended September 30, 2015 were included in the Consolidated Statement of Income.

The following tables show the Company’s gross unrealized losses and fair value, aggregated by investment category and length of time, that the individual securities have been in a continuous unrealized loss position, at September 30, 2016 and December 31, 2015.

	September 30, 2016
	Less than Twelve Months					Twelve Months or Greater					Total
			Gross					Gross					Gross
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
(In Thousands)	Value		Losses			Value		Losses			Value		Losses
Available for sale (AFS)
U.S. Government and agency securities	$	—	$	—		$	—	$	—		$	—	$	—
Mortgage-backed securities	—		—			3,653		(62		)	3,653		(62		)
Asset-backed securities	—		—			1,538		(5		)	1,538		(5		)
State and political securities	1,001		(3		)	—		—			1,001		(3		)
Other debt securities	11,753		(271		)	12,187		(957		)	23,940		(1,228		)
Total debt securities	12,754		(274		)	17,378		(1,024		)	30,132		(1,298		)
Financial institution equity securities	—		—			—		—			—		—
Other equity securities	780		(20		)	238		(128		)	1,018		(148		)
Total equity securities	780		(20		)	238		(128		)	1,018		(148		)
Total investment securities AFS	$	13,534	$	(294	)	$	17,616	$	(1,152	)	$	31,150	$	(1,446	)

	December 31, 2015
	Less than Twelve Months					Twelve Months or Greater					Total
			Gross					Gross					Gross
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
(In Thousands)	Value		Losses			Value		Losses			Value		Losses
Available for sale (AFS)
U.S. Government and agency securities	$	—	$	—		$	3,549	$	(37	)	$	3,549	$	(37	)
Mortgage-backed securities	6,081		(60		)	—		—			6,081		(60		)
Asset-backed securities	1,626		(16		)	314		(4		)	1,940		(20		)
State and political securities	7,345		(47		)	1,656		(187		)	9,001		(234		)
Other debt securities	24,381		(530		)	22,547		(1,715		)	46,928		(2,245		)
Total debt securities	39,433		(653		)	28,066		(1,943		)	67,499		(2,596		)
Financial institution equity securities	—		—			53		(14		)	53		(14		)
Other equity securities	2,363		(277		)	1,001		(158		)	3,364		(435		)
Total equity securities	2,363		(277		)	1,054		(172		)	3,417		(449		)
Total investment securities AFS	$	41,796	$	(930	)	$	29,120	$	(2,115	)	$	70,916	$	(3,045	)

At September 30, 2016 there were a total of 13 securities in a continuous unrealized loss position for less than twelve months and 11 individual securities that were in a continuous unrealized loss position for twelve months or greater.

The Company reviews its position quarterly and has determined that, at September 30, 2016, the declines outlined in the above table represent temporary declines and the Company does not intend to sell and does not believe it will be required to sell these securities before recovery of their cost basis, which may be at maturity.  The Company has concluded that the unrealized losses disclosed above are not other than temporary but are the result of interest rate changes, sector credit ratings changes, or company-specific ratings changes that are not expected to result in the non-collection of principal and interest during the period.

The amortized cost and fair value of debt securities at September 30, 2016, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities since borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

(In Thousands)	Amortized Cost		Fair Value
Due in one year or less	$	1,354	$	1,354
Due after one year to five years	36,382		36,887
Due after five years to ten years	67,710		67,992
Due after ten years	21,766		22,419
Total	$	127,212	$	128,652

Total gross proceeds from sales of securities available for sale were $42,180,000 and $43,051,000 for the nine months ended September 30, 2016 and 2015, respectively. 

The following table represents gross realized gains and losses within the available for sale portfolio:

	Three Months Ended September 30,				Nine Months Ended September 30,
(In Thousands)	2016		2015		2016		2015
Gross realized gains:
U.S. Government and agency securities	$	11	$	—	$	11	$	—
Mortgage-backed securities	29		—		35		—
State and political securities	146		511		784		1,257
Other debt securities	—		14		258		273
Financial institution equity securities	68		1		150		163
Other equity securities	73		—		217		132
Total gross realized gains	$	327	$	526	$	1,455	$	1,825
Gross realized losses:
U.S. Government and agency securities	$	2	$	—	$	5	$	—
Mortgage-backed securities	—		—		—		—
Asset-backed securities	—		—		—		—
State and political securities	1		—		1		22
Other debt securities	26		—		189		47
Financial institution equity securities	—		—		—		—
Other equity securities	45		—		86		43
Total gross realized losses	$	74	$	—	$	281	$	112

The following table represents gross realized gains and losses within the trading portfolios:

	Three Months Ended September 30,				Nine Months Ended September 30,
(In Thousands)	2016		2015		2016		2015
Gross realized gains:
Financial institution equity securities	—		—		$	6	$	2
Other equity securities	8		2		76		3
Total gross realized gains	$	8	$	2	$	82	$	5
Gross realized losses:
Financial institution equity securities	—		12		$	12	$	15
Other equity securities	—		23		16		27
Total gross realized losses	$	—	$	35	$	28	$	42

There were no impairment charges included in gross realized losses for the three and nine months ended September 30, 2016 and 2015, respectively.

Investment securities with a carrying value of approximately $102,872,000 and $131,089,000 at September 30, 2016 and December 31, 2015, respectively, were pledged to secure certain deposits, repurchase agreements, and for other purposes as required by law.

XML

Loans

9 Months Ended

Sep. 30, 2016

Loans and Leases Receivable Disclosure [Abstract]

Loans

Loans

Management segments the Banks' loan portfolio to a level that enables risk and performance monitoring according to similar risk characteristics.  Loans are segmented based on the underlying collateral characteristics.  Categories include commercial, financial, and agricultural, real estate, and installment loans to individuals.  Real estate loans are further segmented into three categories: residential, commercial, and construction.

The following table presents the related aging categories of loans, by segment, as of September 30, 2016 and December 31, 2015:

	September 30, 2016
				Past Due		Past Due 90
				30 To 89		Days Or More		Non-
(In Thousands)	Current			Days		& Still Accruing		Accrual		Total
Commercial, financial, and agricultural	$	155,157		$	233	$	—	$	137	$	155,527
Real estate mortgage:
Residential	551,143			2,752		114		2,603		556,612
Commercial	289,926			987		—		8,676		299,589
Construction	26,927			2		—		—		26,929
Installment loans to individuals	31,648			552		—		—		32,200
	1,054,801			$	4,526	$	114	$	11,416	1,070,857
Net deferred loan fees and discounts	(1,377		)							(1,377		)
Allowance for loan losses	(12,718		)							(12,718		)
Loans, net	$	1,040,706								$	1,056,762

	December 31, 2015
				Past Due		Past Due 90
				30 To 89		Days Or More		Non-
(In Thousands)	Current			Days		& Still Accruing		Accrual		Total
Commercial, financial, and agricultural	$	162,312		$	164	$	—	$	1,596	$	164,072
Real estate mortgage:
Residential	517,753			6,827		714		889		526,183
Commercial	295,784			720		265		5,770		302,539
Construction	26,545			67		—		212		26,824
Installment loans to individuals	26,572			429		—		—		27,001
	1,028,966			$	8,207	$	979	$	8,467	1,046,619
Net deferred loan fees and discounts	(1,412		)							(1,412		)
Allowance for loan losses	(12,044		)							(12,044		)
Loans, net	$	1,015,510								$	1,033,163

Purchased loans acquired are recorded at fair value on their purchase date without a carryover of the related allowance for loan losses.

Upon the acquisition of Luzerne Bank on June 1, 2013, the Company evaluated whether each acquired loan (regardless of size) was within the scope of ASC 310-30, Receivables-Loans and Debt Securities Acquired with Deteriorated Credit Quality.  Purchased credit-impaired loans are loans that have evidence of credit deterioration since origination and it is probable at the date of acquisition that the Company will not collect all contractually required principal and interest payments. There were no material increases or decreases in the expected cash flows of these loans between June 1, 2013 (the “acquisition date”) and September 30, 2016.  The fair value of purchased credit-impaired loans, on the acquisition date, was determined, primarily based on the fair value of loan collateral.  The carrying value of purchased loans acquired with deteriorated credit quality was $329,000 at September 30, 2016.

On the acquisition date, the preliminary estimate of the unpaid principal balance for all loans evidencing credit impairment acquired in the Luzerne Bank acquisition was $1,211,000 and the estimated fair value of the loans was $878,000. Total contractually required payments on these loans, including interest, at the acquisition date was $1,783,000. However, the Company’s preliminary estimate of expected cash flows was $941,000. At such date, the Company established a credit risk related non-accretable discount (a discount representing amounts which are not expected to be collected from either the customer or liquidation of collateral) of $842,000 relating to these impaired loans, reflected in the recorded net fair value. Such amount is reflected as a non-accretable fair value adjustment to loans. The Company further estimated the timing and amount of expected cash flows in excess of the estimated fair value and established an accretable discount of $63,000 on the acquisition date relating to these impaired loans.

The following table presents additional information regarding loans acquired in the Luzerne Bank transaction with specific evidence of deterioration in credit quality:

(In Thousands)	September 30, 2016		December 31, 2015
Outstanding balance	$	429	$	441
Carrying amount	329		341

There were no material increases or decreases in the expected cash flows of these loans between June 1, 2013 (the “acquisition date”) and September 30, 2016. There has been no allowance for loan losses recorded for acquired loans with specific evidence of deterioration in credit quality as of September 30, 2016.

The following table presents interest income the Banks would have recorded if interest had been recorded based on the original loan agreement terms and rate of interest for non-accrual loans and interest income recognized on a cash basis for non-accrual loans for the three and nine months ended September 30, 2016 and 2015:

	Three Months Ended September 30,
	2016				2015
(In Thousands)	Interest Income That Would Have Been Recorded Based on Original Term and Rate		Interest Income Recorded on a Cash Basis		Interest Income That Would Have Been Recorded Based on Original Term and Rate		Interest Income Recorded on a Cash Basis
Commercial, financial, and agricultural	$	1	$	—	$	3	$	—
Real estate mortgage:
Residential	57		68		12		8
Commercial	109		90		77		12
Construction	—		—		15		17
	$	167	$	158	$	107	$	37

	Nine Months Ended September 30,
	2016				2015
(In Thousands)	Interest Income That Would Have Been Recorded Based on Original Term and Rate		Interest Income Recorded on a Cash Basis		Interest Income That Would Have Been Recorded Based on Original Term and Rate		Interest Income Recorded on a Cash Basis
Commercial, financial, and agricultural	$	5	$	1	$	17	$	8
Real estate mortgage:
Residential	113		95		33		27
Commercial	388		170		248		47
Construction	—				45		53
	$	506	$	266	$	343	$	135

Impaired Loans

Impaired loans are loans for which it is probable the Banks will not be able to collect all amounts due according to the contractual terms of the loan agreement.  The Banks evaluate such loans for impairment individually and does not aggregate loans by major risk classifications.  The definition of “impaired loans” is not the same as the definition of “non-accrual loans,” although the two categories overlap.  The Banks may choose to place a loan on non-accrual status due to payment delinquency or uncertain collectability, while not classifying the loan as impaired. Factors considered by management in determining impairment include payment status and collateral value.  The amount of impairment for these types of loans is determined by the difference between the present value of the expected cash flows related to the loan, using the original interest rate, and its recorded value, or as a practical expedient in the case of collateralized loans, the difference between the fair value of the collateral and the recorded amount of the loan.  When foreclosure is probable, impairment is measured based on the fair value of the collateral.

Management evaluates individual loans in all of the commercial segments for possible impairment if the loan is greater than $100,000 and if the loan is either on non-accrual status or has a risk rating of substandard.  Management may also elect to measure an individual loan for impairment if less than $100,000 on a case-by-case basis.

Mortgage loans on one-to-four family properties and all consumer loans are large groups of smaller-balance homogeneous loans and are measured for impairment collectively. Loans that experience insignificant payment delays, which are defined as 90 days or less, generally are not classified as impaired.  Management determines the significance of payment delays on a case-by-case basis taking into consideration all circumstances surrounding the loan and the borrower including the length of the delay, the borrower’s prior payment record, and the amount of shortfall in relation to the principal and interest owed.  Interest income for impaired loans is recorded consistent with the Banks' policy on non-accrual loans.

The following table presents the recorded investment, unpaid principal balance, and related allowance of impaired loans by segment as of September 30, 2016 and December 31, 2015:

	September 30, 2016
	Recorded		Unpaid Principal		Related
(In Thousands)	Investment		Balance		Allowance
With no related allowance recorded:
Commercial, financial, and agricultural	$	126	$	126	$	—
Real estate mortgage:
Residential	1,789		1,789		—
Commercial	1,920		1,970		—
	3,835		3,885		—
With an allowance recorded:
Commercial, financial, and agricultural	137		137		74
Real estate mortgage:
Residential	2,666		2,766		530
Commercial	10,414		10,414		2,018
	13,217		13,317		2,622
Total:
Commercial, financial, and agricultural	263		263		74
Real estate mortgage:
Residential	4,455		4,555		530
Commercial	12,334		12,384		2,018
	$	17,052	$	17,202	$	2,622

	December 31, 2015
	Recorded		Unpaid Principal		Related
(In Thousands)	Investment		Balance		Allowance
With no related allowance recorded:
Commercial, financial, and agricultural	$	319	$	319	$	—
Real estate mortgage:
Residential	1,142		1,142		—
Commercial	1,735		1,785		—
Construction	212		212		—
	3,408		3,458		—
With an allowance recorded:
Commercial, financial, and agricultural	150		150		75
Real estate mortgage:
Residential	1,573		1,703		376
Commercial	10,752		10,752		1,653
Construction	—		—		—
	12,475		12,605		2,104
Total:
Commercial, financial, and agricultural	469		469		75
Real estate mortgage:
Residential	2,715		2,845		376
Commercial	12,487		12,537		1,653
Construction	212		212		—
	$	15,883	$	16,063	$	2,104

The following table presents the average recorded investment in impaired loans and related interest income recognized for the three and nine months ended for September 30, 2016 and 2015:

	Three Months Ended September 30,
	2016						2015
(In Thousands)	Average Investment in Impaired Loans		Interest Income Recognized on an Accrual Basis on Impaired Loans		Interest Income Recognized on a Cash Basis on Impaired Loans		Average Investment in Impaired Loans		Interest Income Recognized on an Accrual Basis on Impaired Loans		Interest Income Recognized on a Cash Basis on Impaired Loans
Commercial, financial, and agricultural	$	346	$	4	$	—	$	699	$	5	$	—
Real estate mortgage:
Residential	2,784		23		41		2,245		17		14
Commercial	12,383		83		16		14,210		90		35
Construction	67		—				906		—		17
	$	15,580	$	110	$	57	$	18,060	$	112	$	66

	Nine Months Ended September 30,
	2016						2015
(In Thousands)	Average Investment in Impaired Loans		Interest Income Recognized on an Accrual Basis on Impaired Loans		Interest Income Recognized on a Cash Basis on Impaired Loans		Average Investment in Impaired Loans		Interest Income Recognized on an Accrual Basis on Impaired Loans		Interest Income Recognized on a Cash Basis on Impaired Loans
Commercial, financial, and agricultural	$	586	$	12	$	1	$	924	$	15	$	10
Real estate mortgage:
Residential	4,539		67		68		1,954		45		31
Commercial	16,988		247		96		14,492		238		71
Construction	208		—				812		—		53
	$	22,321	$	326	$	165	$	18,182	$	298	$	165

Currently, there is $24,000 committed to be advanced in connection with impaired loans.

Troubled Debt Restructurings

The loan portfolio also includes certain loans that have been modified in a Troubled Debt Restructuring (“TDR”), where economic concessions have been granted to borrowers who have experienced or are expected to experience financial difficulties.  These concessions typically result from loss mitigation activities and could include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance, or other actions.  Certain TDRs are classified as nonperforming at the time of restructure and may only be returned to performing status after considering the borrower’s sustained repayment performance for a reasonable period, generally six months.

There were two loan modifications that were considered TDRs completed during the three months ended September 30, 2016. Loan modifications that are considered TDRs completed during the three and nine months ended September 30, 2016 and 2015 and were as follows:

	Three Months Ended September 30,
	2016					2015
(In Thousands, Except Number of Contracts)	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Commercial, financial, and agricultural	—	$	—	$	—	2	$	116	$	116
Real estate mortgage:
Residential	2	580		580		6	641		641
Commercial	—	—		—		4	496		496
Construction	—	—		—		—	—		—
	2	$	580	$	580	12	$	1,253	$	1,253

	Nine Months Ended September 30,
	2016					2015
(In Thousands, Except Number of Contracts)	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Commercial, financial, and agricultural	—	$	—	$	—	4	$	213	$	213
Real estate mortgage:
Residential	4	922		922		12	963		963
Commercial	1	838		838		6	1,013		1,013
Construction	—	—		—		1	398		398
	5	$	1,760	$	1,760	23	$	2,587	$	2,587

There were five loan modifications considered to be TDRs made during the twelve months previous to September 30, 2016 that defaulted during the nine months ended September 30, 2016.  The defaulted loan types and recorded investments at March 31, 2016 are as follows: one commercial loan with a recorded investment of $103,000, one commercial real estate loan with a recorded investment of $239,000, and three residential real estate loan with a recorded investment of $173,000. There was one loan modifications considered TDRs made during the twelve months previous to September 30, 2015 that defaulted during the nine months endedSeptember 30, 2015. The loan that defaulted is a commercial real estate loans with a recorded investment of $48,000 at September 30, 2015.

Troubled debt restructurings amounted to $9,219,000 and $9,647,000 as of September 30, 2016 and December 31, 2015.

The amount of foreclosed residential real estate held at September 30, 2016 and December 31, 2015, totaled $0 and $102,000, respectively. Consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings are in process at September 30, 2016 and December 31, 2015, totaled $872,000 and $448,000, respectively.

Internal Risk Ratings

Management uses a ten point internal risk rating system to monitor the credit quality of the overall loan portfolio. The first six categories are considered not criticized, and are aggregated as “Pass” rated. The criticized rating categories utilized by management generally follow bank regulatory definitions. The special mention category includes assets that are currently protected but are potentially weak, resulting in an undue and unwarranted credit risk, but not to the point of justifying a substandard classification. Loans in the substandard category have well-defined weaknesses that jeopardize the liquidation of the debt, and have a distinct possibility that some loss will be sustained if the weaknesses are not corrected. All loans greater than 90 days past due are evaluated for substandard classification.  Loans in the doubtful category exhibit the same weaknesses found in the substandard loans, however, the weaknesses are more pronounced.  Such loans are static and collection in full is improbable.  However, these loans are not yet rated as loss because certain events may occur which would salvage the debt.  Loans classified loss are considered uncollectible and charge-off is imminent.

To help ensure that risk ratings are accurate and reflect the present and future capacity of borrowers to repay a loan as agreed, the Banks have a structured loan rating process with several layers of internal and external oversight.  Generally, consumer and residential mortgage loans are included in the pass category unless a specific action, such as bankruptcy, repossession, or death occurs to raise awareness of a possible credit event.  An external annual loan review of large commercial relationships is performed, as well as a sample of smaller transactions. Confirmation of the appropriate risk category is included in the review. Detailed reviews, including plans for resolution, are performed on loans classified as substandard, doubtful, or loss on a quarterly basis.

The following table presents the credit quality categories identified above as of September 30, 2016 and December 31, 2015:

	September 30, 2016
	Commercial, Financial, and Agricultural		Real Estate Mortgages						Installment Loans to Individuals
(In Thousands)			Residential		Commercial		Construction				Totals
Pass	$	152,425	$	553,115	$	277,903	$	26,929	$	32,200	$	1,042,572
Special Mention	2,739		587		6,063		—		—		9,389
Substandard	363		2,910		15,623		—		—		18,896
	$	155,527	$	556,612	$	299,589	$	26,929	$	32,200	$	1,070,857

	December 31, 2015
	Commercial, Financial, and Agricultural		Real Estate Mortgages						Installment Loans to Individuals
(In Thousands)			Residential		Commercial		Construction				Totals
Pass	$	160,734	$	522,853	$	277,248	$	26,612	$	27,001	$	1,014,448
Special Mention	1,669		823		8,625		—		—		11,117
Substandard	1,669		2,507		16,666		212		—		21,054
	$	164,072	$	526,183	$	302,539	$	26,824	$	27,001	$	1,046,619

Allowance for Loan Losses

An allowance for loan losses (“ALL”) is maintained to absorb losses from the loan portfolio.  The ALL is based on management’s continuing evaluation of the risk characteristics and credit quality of the loan portfolio, assessment of current economic conditions, diversification and size of the portfolio, adequacy of collateral, past and anticipated future loss experience, and the amount of non-performing loans.

The Banks' methodology for determining the ALL is based on the requirements of ASC Section 310-10-35 for loans individually evaluated for impairment (previously discussed) and ASC Subtopic 450-20 for loans collectively evaluated for impairment, as well as the Interagency Policy Statements on the Allowance for Loan and Lease Losses and other bank regulatory guidance.  The total of the two components represents the Banks' ALL.

Loans that are collectively evaluated for impairment are analyzed with general allowances being made as appropriate.  Allowances are segmented based on collateral characteristics previously disclosed, and consistent with credit quality monitoring.  Loans that are collectively evaluated for impairment are grouped into two classes for evaluation.  A general allowance is determined for “Pass” rated credits, while a separate pool allowance is provided for “Criticized” rated credits that are not individually evaluated for impairment.

For the general allowances, historical loss trends are used in the estimation of losses in the current portfolio.  These historical loss amounts are modified by other qualitative factors.  A historical charge-off factor is calculated utilizing a twelve quarter moving average.  However, management may adjust the moving average time frame by up to four quarters to adjust for variances in the economic cycle. Management has identified a number of additional qualitative factors which it uses to supplement the historical charge-off factor because these factors are likely to cause estimated credit losses associated with the existing loan pools to differ from historical loss experience.  The additional factors that are evaluated quarterly and updated using information obtained from internal, regulatory, and governmental sources are: national and local economic trends and conditions; levels of and trends in delinquency rates and non-accrual loans; trends in volumes and terms of loans; effects of changes in lending policies; experience, ability, and depth of lending staff; value of underlying collateral; and concentrations of credit from a loan type, industry and/or geographic standpoint.

Loans in the criticized pools, which possess certain qualities or characteristics that may lead to collection and loss issues, are closely monitored by management and subject to additional qualitative factors.  Management also monitors industry loss factors by loan segment for applicable adjustments to actual loss experience.

Management reviews the loan portfolio on a quarterly basis in order to make appropriate and timely adjustments to the ALL.  When information confirms all or part of specific loans to be uncollectible, these amounts are promptly charged off against the ALL.

Activity in the allowance is presented for the three and nine months ended September 30, 2016 and 2015:

	Three Months Ended September 30, 2016
	Commercial, Financial, and Agricultural			Real Estate Mortgages								Installment Loans to Individuals
(In Thousands)				Residential			Commercial		Construction						Unallocated		Totals
Beginning Balance	$	1,273		$	5,851		$	4,001	$	143		$	277		$	972	$	12,517
Charge-offs	(18		)	(4		)	—		—			(67		)	—		(89		)
Recoveries	4			8			3		1			16			—		32
Provision	(9		)	(550		)	642		(29		)	111			93		258
Ending Balance	$	1,250		$	5,305		$	4,646	$	115		$	337		$	1,065	$	12,718

	Three Months Ended September 30, 2015
	Commercial, Financial, and Agricultural			Real Estate Mortgages									Installment Loans to Individuals
(In Thousands)				Residential			Commercial			Construction						Unallocated		Totals
Beginning Balance	$	1,286		$	4,334		$	3,869		$	548		$	237		$	991	$	11,265
Charge-offs	—			(29		)	(294		)	—			(47		)	—		(370		)
Recoveries	23			32			—			3			16			—		74
Provision	(1		)	150			305			(187		)	39			214		520
Ending Balance	$	1,308		$	4,487		$	3,880		$	364		$	245		$	1,205	$	11,489

	Nine Months Ended September 30, 2016
	Commercial, Financial, and Agricultural			Real Estate Mortgages								Installment Loans to Individuals
(In Thousands)				Residential			Commercial		Construction						Unallocated		Totals
Beginning Balance	$	1,532		$	5,116		$	4,217	$	160		$	243		$	776	$	12,044
Charge-offs	(167		)	(11		)	—		—			(171		)	—		(349		)
Recoveries	56			14			8		6			73			—		157
Provision	(171		)	186			421		(51		)	192			289		866
Ending Balance	$	1,250		$	5,305		$	4,646	$	115		$	337		$	1,065	$	12,718

	Nine Months Ended September 30, 2015
	Commercial, Financial, and Agricultural			Real Estate Mortgages									Installment Loans to Individuals
(In Thousands)				Residential			Commercial			Construction						Unallocated		Totals
Beginning Balance	$	1,124		$	3,755		$	4,205		$	786		$	245		$	464	$	10,579
Charge-offs	(283		)	(30		)	(743		)	(46		)	(161		)	—		(1,263		)
Recoveries	51			69			169			19			45			—		353
Provision	416			693			249			(395		)	116			741		1,820
Ending Balance	$	1,308		$	4,487		$	3,880		$	364		$	245		$	1,205	$	11,489

The Company grants commercial, industrial, residential, and installment loans to customers primarily throughout north-east and central Pennsylvania. Although the Company has a diversified loan portfolio, a substantial portion of its debtors’ ability to honor their contracts is dependent on the economic conditions within this region.

The Company has a concentration of the following to gross loans at September 30, 2016 and 2015:

	September 30,
	2016		2015
Owners of residential rental properties	16.64	%	16.44	%
Owners of commercial rental properties	14.11	%	14.17	%

The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment based on impairment method as of September 30, 2016 and December 31, 2015:

	September 30, 2016
	Commercial, Financial, and Agricultural		Real Estate Mortgages						Installment Loans to Individuals		Unallocated
(In Thousands)			Residential		Commercial		Construction						Totals
Allowance for Loan Losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	74	$	530	$	2,018	$	—	$	—	$	—	$	2,622
Collectively evaluated for impairment	1,176		4,775		2,628		115		337		1,065		10,096
Total ending allowance balance	$	1,250	$	5,305	$	4,646	$	115	$	337	$	1,065	$	12,718
Loans:
Individually evaluated for impairment	$	263	$	4,126	$	12,334	$	—	$	—			$	16,723
Loans acquired with deteriorated credit quality	—		329		—		—		—				329
Collectively evaluated for impairment	155,264		552,157		287,255		26,929		32,200				1,053,805
Total ending loans balance	$	155,527	$	556,612	$	299,589	$	26,929	$	32,200			$	1,070,857

	December 31, 2015
	Commercial, Financial, and Agricultural		Real Estate Mortgages						Installment Loans to Individuals		Unallocated
(In Thousands)			Residential		Commercial		Construction						Totals
Allowance for Loan Losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	75	$	376	$	1,653	$	—	$	—	$	—	$	2,104
Collectively evaluated for impairment	1,457		4,740		2,564		160		243		776		9,940
Total ending allowance balance	$	1,532	$	5,116	$	4,217	$	160	$	243	$	776	$	12,044
Loans:
Individually evaluated for impairment	$	469	$	2,374	$	12,487	$	212	$	—			$	15,542
Loans acquired with deteriorated credit quality	—		341		—		—		—				341
Collectively evaluated for impairment	163,603		523,468		290,052		26,612		27,001				1,030,736
Total ending loans balance	$	164,072	$	526,183	$	302,539	$	26,824	$	27,001			$	1,046,619

XML

Net Periodic Benefit Cost-Defined Benefit Plans

9 Months Ended

Sep. 30, 2016

Pension and Other Postretirement Benefit Expense [Abstract]

Net Periodic Benefit Cost-Defined Benefit Plans

Net Periodic Benefit Cost-Defined Benefit Plans

For a detailed disclosure on the Company’s pension and employee benefits plans, please refer to Note 13 of the Company’s Consolidated Financial Statements included in the Annual Report on Form 10-K for the year ended December 31, 2015.

The following sets forth the components of the net periodic benefit/cost of the domestic non-contributory defined benefit plan for the three and nine months ended September 30, 2016 and 2015, respectively:

	Three Months Ended September 30,						Nine Months Ended September 30,
(In Thousands)	2016			2015			2016			2015
Service cost	$	17		$	16		$	51		$	48
Interest cost	193			189			579			567
Expected return on plan assets	(251		)	(246		)	(753		)	(737		)
Amortization of net loss	39			39			117			119
Net periodic benefit cost	$	(2	)	$	(2	)	$	(6	)	$	(3	)

Employer Contributions

The Company previously disclosed in its consolidated financial statements, included in the Annual Report on Form 10-K for the year ended December 31, 2015, that it expected to contribute a minimum of $500,000 to its defined benefit plan in 2016.  As of September 30, 2016, there were contributions of $500,000 made to the plan with additional contributions of at least $250,000 anticipated during the remainder of 2016.

XML

Employee Stock Purchase Plan

9 Months Ended

Sep. 30, 2016

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Employee Stock Purchase Plan

Employee Stock Purchase Plan

The Company maintains an Employee Stock Purchase Plan (“Plan”).  The Plan is intended to encourage employee participation in the ownership and economic progress of the Company.  The Plan allows for up to 1,000,000 shares to be purchased by employees.  The purchase price of the shares is 95% of market value with an employee eligible to purchase up to the lesser of 15% of base compensation or $12,000 in market value annually.  During the nine months ended September 30, 2016 and 2015, there were 1,617 and 1,723 shares issued under the plan, respectively.

XML

Off Balance Sheet Risk

9 Months Ended

Sep. 30, 2016

Off Balance Sheet Risk

Off Balance Sheet Risk

Off Balance Sheet Risk

The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers.  These financial instruments are primarily comprised of commitments to extend credit, standby letters of credit, and credit exposure from the sale of assets with recourse.  These instruments involve, to varying degrees, elements of credit, interest rate, or liquidity risk in excess of the amount recognized in the Consolidated Balance Sheet.  The contract amounts of these instruments express the extent of involvement the Company has in particular classes of financial instruments.

The Company’s exposure to credit loss from nonperformance by the other party to the financial instruments for commitments to extend credit and standby letters of credit is represented by the contractual amount of these instruments.  The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments.  The Company may require collateral or other security to support financial instruments with off-balance sheet credit risk.

Financial instruments whose contract amounts represent credit risk are as follows at September 30, 2016 and December 31, 2015:

(In Thousands)	September 30, 2016		December 31, 2015
Commitments to extend credit	$	254,123	$	241,936
Standby letters of credit	6,607		4,786
Credit exposure from the sale of assets with recourse	9,398		6,523
	$	270,128	$	253,245

Commitments to extend credit are legally binding agreements to lend to customers.  Commitments generally have fixed expiration dates or other termination clauses and may require payment of fees.  Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future liquidity requirements.  The Company evaluates each customer’s credit worthiness on a case-by-case basis.  The amount of collateral obtained, if deemed necessary by the Company, on an extension of credit is based on management’s credit assessment of the counterparty.

Standby letters of credit represent conditional commitments issued by the Company to guarantee the performance of a customer to a third party.  These instruments are issued primarily to support bid or performance related contracts.  The coverage period for these instruments is typically a one year period with an annual renewal option subject to prior approval by management.  Fees earned from the issuance of these letters are recognized upon expiration of the coverage period.  For secured letters of credit, the collateral is typically Bank deposit instruments or customer business assets.

XML

Fair Value Measurements

9 Months Ended

Sep. 30, 2016

Fair Value Disclosures [Abstract]

Fair Value Measurements

Fair Value Measurements

The following disclosures show the hierarchal disclosure framework associated with the level of pricing observations utilized in measuring assets and liabilities at fair value.

Level I:	Quoted prices are available in active markets for identical assets or liabilities as of the reported date.
Level II:	Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reported date. The nature of these assets and liabilities include items for which quoted prices are available but traded less frequently, and items that are fair valued using other financial instruments, the parameters of which can be directly observed.
Level III:	Assets and liabilities that have little to no pricing observability as of the reported date. These items do not have two-way markets and are measured using management’s best estimate of fair value, where the inputs into the determination of fair value require significant management judgment or estimation.

This hierarchy requires the use of observable market data when available.

The following table presents the assets reported on the balance sheet at their fair value on a recurring basis as of September 30, 2016 and December 31, 2015, by level within the fair value hierarchy. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

	September 30, 2016
(In Thousands)	Level I		Level II		Level III		Total
Assets measured on a recurring basis:
Investment securities, available for sale:
U.S. Government and agency securities	$	—	$	—	$	—	$	—
Mortgage-backed securities	—		10,259		—		10,259
Asset-backed securities	—		1,538		—		1,538
State and political securities	—		62,642		—		62,642
Other debt securities	—		54,213		—		54,213
Financial institution equity securities	10,773		—		—		10,773
Other equity securities	1,632		—		—		1,632
Investment securities, trading:
Financial institution equity securities	—		—		—		—
Total assets measured on a recurring basis	$	12,405	$	128,652	$	—	$	141,057

	December 31, 2015
(In Thousands)	Level I		Level II		Level III		Total
Assets measured on a recurring basis:
Investment securities, available for sale:
U.S. Government and agency securities	$	—	$	3,549	$	—	$	3,549
Mortgage-backed securities	—		10,009		—		10,009
Asset-backed securities	—		1,940		—		1,940
State and political securities	—		86,555		—		86,555
Other debt securities	—		57,772		—		57,772
Financial institution equity securities	11,483		—		—		11,483
Other equity securities	4,849		—		—		4,849
Investment securities, trading:
Financial institution equity securities	73		—		—		73
Total assets measured on a recurring basis	$	16,405	$	159,825	$	—	$	176,230

The following table presents the assets reported on the Consolidated Balance Sheet at their fair value on a non-recurring basis as of September 30, 2016 and December 31, 2015, by level within the fair value hierarchy. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. 

	September 30, 2016
(In Thousands)	Level I		Level II		Level III		Total
Assets measured on a non-recurring basis:
Impaired loans	$	—	$	—	$	14,430	$	14,430
Other real estate owned	—		—		1,290		1,290
Total assets measured on a non-recurring basis	$	—	$	—	$	15,720	$	15,720

	December 31, 2015
(In Thousands)	Level I		Level II		Level III		Total
Assets measured on a non-recurring basis:
Impaired loans	$	—	$	—	$	13,779	$	13,779
Other real estate owned	—		—		1,696		1,696
Total assets measured on a non-recurring basis	$	—	$	—	$	15,475	$	15,475

The following tables present a listing of significant unobservable inputs used in the fair value measurement process for items valued utilizing level III techniques as of September 30, 2016 and December 31, 2015: 

	September 30, 2016
	Quantitative Information About Level III Fair Value Measurements
(In Thousands)	Fair Value		Valuation Technique(s)	Unobservable Inputs	Range	Weighted Average
Impaired loans	$	5,126	Discounted cash flow	Temporary reduction in payment amount	0 to (70)%	(16)%
	9,304		Appraisal of collateral	Appraisal adjustments (1)	0 to (20)%	(13)%
Other real estate owned	$	1,290	Appraisal of collateral (1)

(1) Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses.

	December 31, 2015
	Quantitative Information About Level III Fair Value Measurements
(In Thousands)	Fair Value		Valuation Technique(s)	Unobservable Inputs	Range	Weighted Average
Impaired loans	$	5,696	Discounted cash flow	Temporary reduction in payment amount	0 to (70)%	(17)%
	8,083		Appraisal of collateral	Appraisal adjustments (1)	0 to (20)%	(15)%
Other real estate owned	$	1,696	Appraisal of collateral (1)

(1) Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses.

The discounted cash flow valuation technique is utilized to determine the fair value of performing impaired loans, while non-performing impaired loans utilize the appraisal of collateral method.

The significant unobservable inputs used in the fair value measurement of the Company’s impaired loans using the discounted cash flow valuation technique include temporary changes in payment amounts and the probability of default.  Significant increases (decreases) in payment amounts would result in significantly higher (lower) fair value measurements. 

The significant unobservable input used in the fair value measurement of the Company’s impaired loans using the appraisal of collateral valuation technique include appraisal adjustments, which are adjustments to appraisals by management for qualitative factors such as economic conditions and estimated liquidation expenses.  The significant unobservable input used in the fair value measurement of the Company’s other real estate owned are the same inputs used to value impaired loans using the appraisal of collateral valuation technique.

XML

Fair Value of Financial Instruments

9 Months Ended

Sep. 30, 2016

Fair Value Disclosures [Abstract]

Fair Value of Financial Instruments

Fair Value of Financial Instruments

The Company is required to disclose fair values for its financial instruments.  Fair values are made at a specific point in time, based on relevant market information and information about the financial instrument.  These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument.  Also, it is the Company’s general practice and intention to hold most of its financial instruments to maturity and not to engage in trading or sales activities.  Because no market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors.  These fair values are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision.  Changes in assumptions can significantly affect the fair values.

Fair values have been determined by the Company using historical data and an estimation methodology suitable for each category of financial instruments.  The Company’s fair values, methods, and assumptions are set forth below for the Company’s other financial instruments.

As certain assets and liabilities, such as deferred tax assets, premises and equipment, and many other operational elements of the Company, are not considered financial instruments but have value, this fair value of financial instruments would not represent the full market value of the Company.

The fair values of the Company’s financial instruments are as follows at September 30, 2016 and December 31, 2015:

	Carrying		Fair		Fair Value Measurements at September 30, 2016
(In Thousands)	Value		Value		Level I		Level II		Level III
Financial assets:
Cash and cash equivalents	$	60,181	$	60,181	$	60,181	$	—	$	—
Investment securities:
Available for sale	141,057		141,057		12,405		128,652		—
Trading	—		—		—		—		—
Loans held for sale	2,160		2,160		2,160		—		—
Loans, net	1,056,762		1,085,769		—		—		1,085,769
Bank-owned life insurance	27,176		27,176		27,176		—		—
Accrued interest receivable	3,800		3,800		3,800		—		—
Financial liabilities:
Interest-bearing deposits	$	792,698	$	787,163	$	564,519	$	—	$	222,644
Noninterest-bearing deposits	295,599		295,599		295,599		—		—
Short-term borrowings	11,579		11,579		11,579		—		—
Long-term borrowings	91,025		92,283		—		—		92,658
Accrued interest payable	481		481		481		—		—

	Carrying		Fair		Fair Value Measurements at December 31, 2015
(In Thousands)	Value		Value		Level I		Level II		Level III
Financial assets:
Cash and cash equivalents	$	22,796	$	22,796	$	22,796	$	—	$	—
Investment securities:
Available for sale	176,157		176,157		16,332		159,825		—
Trading	73		73		73		—		—
Loans held for sale	757		757		757		—		—
Loans, net	1,033,163		1,045,140		—		—		1,045,140
Bank-owned life insurance	26,667		26,667		26,667		—		—
Accrued interest receivable	3,686		3,686		3,686		—		—
Financial liabilities:
Interest-bearing deposits	$	751,797	$	729,685	$	509,206	$	—	$	220,479
Noninterest-bearing deposits	280,083		280,083		280,083		—		—
Short-term borrowings	46,638		46,638		46,638		—		—
Long-term borrowings	91,025		91,783		—		—		91,783
Accrued interest payable	426		426		426		—		—

Cash and Cash Equivalents, Loans Held for Sale, Accrued Interest Receivable, Short-term Borrowings, and Accrued Interest Payable:

The fair value is equal to the carrying value.

Investment Securities:

The fair value of investment securities available for sale and trading is equal to the available quoted market price. If no quoted market price is available, fair value is estimated using the quoted market price for similar securities.  Regulatory stocks’ fair value is equal to the carrying value.

Loans:

Fair values are estimated for portfolios of loans with similar financial characteristics.  Loans are segregated by type such as commercial, financial, and agricultural, commercial real estate, residential real estate, construction real estate, and installment loans to individuals.  Each loan category is further segmented into fixed and adjustable rate interest terms and by performing and nonperforming categories.

The fair value of performing loans is calculated by discounting scheduled cash flows through the estimated maturity using estimated market discount rates that reflect the credit and interest rate risk inherent in the loan.  The estimate of maturity is based on the Company’s historical experience with repayments for each loan classification, modified, as required, by an estimate of the effect of current economic and lending conditions.

Fair value for significant nonperforming loans is based on recent external appraisals.  If appraisals are not available, estimated cash flows are discounted using a rate commensurate with the risk associated with the estimated cash flows.  Assumptions regarding credit risk, cash flows, and discounted rates are judgmentally determined using available market information and specific borrower information.

Bank-Owned Life Insurance:

The fair value is equal to the cash surrender value of the life insurance policies.

Deposits:

The fair value of deposits with no stated maturity, such as noninterest-bearing demand deposits, savings, NOW, and money market accounts, is equal to the amount payable on demand.  The fair value of certificates of deposit is based on the discounted value of contractual cash flows.

The fair value estimates above do not include the benefit that results from the low-cost funding provided by the deposit liabilities compared to the cost of borrowing funds in the market, commonly referred to as the core deposit intangible.

Long Term Borrowings:

The fair value of long term borrowings is based on the discounted value of contractual cash flows.

Commitments to Extend Credit, Standby Letters of Credit, and Financial Guarantees Written:

There is no material difference between the notional amount and the estimated fair value of off-balance sheet items.  The contractual amounts of unfunded commitments and letters of credit are presented in Note 9 (Off Balance Sheet Risk).

XML

Stock Options

9 Months Ended

Sep. 30, 2016

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Stock Options

Stock Options

In 2014, the Company adopted the 2014 Equity Incentive Plan designed to help the Company attract, retain, and motivate employees and non-employee directors. Incentive stock options, non-qualified stock options, and restricted stock may be granted as part of the plan.

On August 27, 2015, the Company issued 38,750 stock options to a group of employees. Each option granted has a strike price of $42.03 and is exercisable only after five years following the date of the grant of such options. The options expire ten years following the date of the grant of such options.

A summary of stock option activity is presented below:

	September 30, 2016				December 31, 2015
	Shares		Weighted Average Exercise Price		Shares		Weighted Average Exercise Price
Outstanding, beginning of year	34,750		$	42.03	—		$	—
Granted	—		—		38,750		42.03
Exercised	—		—		—		—
Forfeited	(3,750	)	42.03		(4,000	)	42.03
Outstanding, end of year	31,000		$	42.03	34,750		$	42.03

The estimated fair value of options, including the effect of estimated forfeitures, is recognized as expense on a straightline basis

over the options’ vesting periods while ensuring that the cumulative amount of compensation cost recognized at least equals the

value of the vested portion of the award at that date. The Company determines the fair value of options granted using the Black-Scholes option-pricing model. The risk-free interest rate is based on the United States Treasury bond with a similar term to the expected life of the options at the grant date. Expected volatility was estimated based on the adjusted historic volatility of the Company’s shares. The expected life was estimated to equal the contractual life of the options. The dividend yield rate was based upon recent historical dividends paid on shares.

XML

Reclassification of Comparative Amounts

9 Months Ended

Sep. 30, 2016

Reclassification of Comparative Amounts

Reclassification of Comparative Amounts

Reclassification of Comparative Amounts

Certain comparative amounts for the prior period have been reclassified to conform to current period presentations. Such reclassifications had no effect on net income or shareholders’ equity.

XML

Recent Accounting Pronouncements (Policies)

9 Months Ended

Sep. 30, 2016

New Accounting Pronouncements and Changes in Accounting Principles [Abstract]

Recent Accounting Pronouncements

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (a new revenue recognition standard). The core principle of the update is that a company will recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, this update specifies the accounting for certain costs to obtain or fulfill a contract with a customer and expands disclosure requirements for revenue recognition. This update is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. The Company is currently evaluating the impact the adoption of the standard will have on the Company's financial position or results of operation.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. This update applies to all entities that hold financial assets or owe financial liabilities and is intended to provide more useful information on the recognition, measurement, presentation, and disclosure of financial instruments. Among other things, this update (a) requires equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income; (b) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; (c) eliminates the requirement to disclose the fair value of financial instruments measured at amortized cost for entities that are not public business entities; (d) eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; (e) requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; (f) requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments; (g) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements; and (h) clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. For public business entities, the amendments in this update are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. For all other entities including not-for-profit entities and employee benefit plans within the scope of Topics 960 through 965 on plan accounting, the amendments in this update are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. All entities that are not public business entities may adopt the amendments in this update earlier as of the fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The standard requires lessees to recognize the assets and liabilities that arise from leases on the balance sheet.  A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term.  A short-term lease is defined as one in which: (a) the lease term is 12 months or less, and (b) there is not an option to purchase the underlying asset that the lessee is reasonably certain to exercise. For short-term leases, lessees may elect to recognize lease payments over the lease term on a straight-line basis. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2018, and interim periods within those years. For all other entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2019, and for interim periods within fiscal years beginning after December 15, 2020. The amendments should be applied at the beginning of the earliest period presented using a modified retrospective approach with earlier application permitted as of the beginning of an interim or annual reporting period. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

In March 2016, the FASB issued ASU 2016-04, Liabilities - Extinguishments of Liabilities (Subtopic 405-20). The standard provides that liabilities related to the sale of prepaid stored-value products within the scope of this Update are financial liabilities. The amendments in the Update provide a narrow scope exception to the guidance in Subtopic 405-20 to require that breakage for those liabilities be accounted for consistent with the breakage guidance in Topic 606. The amendments in this update are effective for public business entities, certain not-for-profit entities, and certain employee benefit plans for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. For all other entities, the amendments are effective for financial statements issued for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. Earlier application is permitted, including adoption in an interim period. This update is not expected to have a significant impact on the Company’s financial statements.

In March 2016, the FASB issued ASU 2016-05, Derivatives and Hedging (Topic 815). The amendments in this update apply to all reporting entities for which there is a change in the counterparty to a derivative instrument that has been designated as a heading instrument under Topic 815. The standards in this update clarify that a change in the counterparty to a derivative instrument that has been designated as the hedging instrument under Topic 815does not, in and of itself, require designation of that hedging relationship provided that all other hedge accounting criteria continue to be met. For public business entities, the amendments in this update are effective for financial statements issued for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. For all other entities, the amendments in this update are effective for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within fiscal years beginning after December 15, 2018. An entity has an option to apply the amendments in this update on either a prospective basis or a modified retrospective basis. Early adoption is permitted, including adoption in an interim period. This update is not expected to have a significant impact on the Company’s financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which changes the impairment model for most financial assets. This ASU is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. The underlying premise of the ASU is that financial assets measured at amortized cost should be presented at the net amount expected to be collected, through an allowance for credit losses that is deducted from the amortized cost basis. The allowance for credit losses should reflect management’s current estimate of credit losses that are expected to occur over the remaining life of a financial asset. The income statement will be effected for the measurement of credit losses for newly recognized financial assets, as well as the expected increases or decreases of expected credit losses that have taken place during the period. ASU 2016-13 is effective for annual and interim periods beginning after December 15, 2019, and early adoption is permitted for annual and interim periods beginning after December 15, 2018. With certain exceptions, transition to the new requirements will be through a cumulative effect adjustment to opening retained earnings as of the beginning of the first reporting period in which the guidance is adopted. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”), which addresses eight specific cash flow issues with the objective of reducing diversity in practice. Among these include recognizing cash payments for debt prepayment or debt extinguishment as cash outflows for financing activities; cash proceeds received from the settlement of insurance claims should be classified on the basis of the related insurance coverage; and cash proceeds received from the settlement of bank-owned life insurance policies should be classified as cash inflows from investing activities while the cash payments for premiums on bank-owned policies may be classified as cash outflows for investing activities, operating activities, or a combination of investing and operating activities. The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity that elects early adoption must adopt all of the amendments in the same period. The amendments in this Update should be applied using a retrospective transition method to each period presented. If it is impracticable to apply the amendments retrospectively for some of the issues, the amendments for those issues would be applied prospectively as of the earliest date practicable. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s statement of cash flows.

XML

Accumulated Other Comprehensive Loss (Tables)

9 Months Ended

Sep. 30, 2016

Comprehensive Income (Loss), Net of Tax, Attributable to Parent [Abstract]

Schedule of changes in accumulated other comprehensive income by component

The changes in accumulated other comprehensive loss by component as of September 30, 2016 and 2015 were as follows:

	Three Months Ended September 30, 2016									Three Months Ended September 30, 2015
(In Thousands)	Net Unrealized Gain on Available for Sale Securities			Defined Benefit  Plan			Total			Net Unrealized Gain on Available for Sale Securities			Defined Benefit  Plan			Total
Beginning balance	$	1,838		$	(4,006	)	$	(2,168	)	$	1,374		$	(4,544	)	$	(3,170	)
Other comprehensive (loss) income before reclassifications	(182		)	—			$	(182	)	391			—			391
Amounts reclassified from accumulated other comprehensive (loss) income	(167		)	26			$	(141	)	(347		)	26			(321		)
Net current-period other comprehensive (loss) income	(349		)	26			$	(323	)	44			26			70
Ending balance	$	1,489		$	(3,980	)	$	(2,491	)	$	1,418		$	(4,518	)	$	(3,100	)

	Nine Months Ended September 30, 2016									Nine Months Ended September 30, 2015
(In Thousands)	Net Unrealized Gain on Available for Sale Securities			Defined Benefit  Plan			Total			Net Unrealized Gain (Los) on Available for Sale Securities			Defined Benefit  Plan			Total
Beginning balance	$	258		$	(4,057	)	$	(3,799	)	$	2,930		$	(4,597	)	$	(1,667	)
Other comprehensive income (loss) before reclassifications	2,007			—			2,007			(381		)	—			(381		)
Amounts reclassified from accumulated other comprehensive (loss) income	(776		)	77			(699		)	(1,131		)	79			(1,052		)
Net current-period other comprehensive income (loss)	1,231			77			1,308			(1,512		)	79			(1,433		)
Ending balance	$	1,489		$	(3,980	)	$	(2,491	)	$	1,418		$	(4,518	)	$	(3,100	)

Schedule of reclassifications out of accumulated other comprehensive income

The reclassifications out of accumulated other comprehensive loss as of September 30, 2016 and 2015 were as follows:

Details about Accumulated Other Comprehensive Loss Components	Amount Reclassified from Accumulated Other Comprehensive Loss						Affected Line Item  in the Consolidated  Statement of Income
	Three Months Ended September 30, 2016			Three Months Ended September 30, 2015
Net unrealized gain on available for sale securities	$	253		$	526		Net securities gains, available for sale
Income tax effect	(86		)	(179		)	Income tax provision
Total reclassifications for the period	$	167		$	347		Net of tax
Net unrecognized pension costs	$	(39	)	$	(39	)	Salaries and employee benefits
Income tax effect	13			13			Income tax provision
Total reclassifications for the period	$	(26	)	$	(26	)	Net of tax

Details about Accumulated Other Comprehensive Loss Components	Amount Reclassified from Accumulated Other Comprehensive Loss						Affected Line Item  in the Consolidated  Statement of Income
	Six Months Ended June 30, 2016			Nine Months Ended September 30, 2015
Net unrealized gain on available for sale securities	$	1,174		$	1,713		Net securities gains, available for sale
Income tax effect	(398		)	(582		)	Income tax provision
Total reclassifications for the period	$	776		$	1,131		Net of tax
Net unrecognized pension costs	$	(117	)	$	(119	)	Salaries and employee benefits
Income tax effect	40			40			Income tax provision
Total reclassifications for the period	$	(77	)	$	(79	)	Net of tax

XML

Per Share Data (Tables)

9 Months Ended

Sep. 30, 2016

Earnings Per Share [Abstract]

Schedule of weighted average common shares (denominator) used in the basic and dilutive earnings per share computation

The following table sets forth the composition of the weighted average common shares (denominator) used in the basic and dilutive earnings per share computation.

	Three Months Ended September 30,				Nine Months Ended September 30,
	2016		2015		2016		2015
Weighted average common shares issued	5,006,252		5,003,979		5,005,707		5,003,396
Weighted average treasury stock shares	(272,452	)	(242,403	)	(269,863	)	(222,620	)
Weighted average common shares and common stock equivalents used to calculate basic and diluted earnings per share	4,733,800		4,761,576		4,735,844		4,780,776

XML

Investment Securities (Tables)

9 Months Ended

Sep. 30, 2016

Investments, Debt and Equity Securities [Abstract]

Available-for-sale Securities

The amortized cost and fair values of investment securities available for sale at September 30, 2016 and December 31, 2015 are as follows:

	September 30, 2016
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
(In Thousands)	Cost		Gains		Losses			Value
Available for sale (AFS)
U.S. Government and agency securities	$	—	$	—	$	—		$	—
Mortgage-backed securities	10,079		242		(62		)	10,259
Asset-backed securities	1,543		—		(5		)	1,538
State and political securities	60,838		1,807		(3		)	62,642
Other debt securities	54,752		689		(1,228		)	54,213
Total debt securities	127,212		2,738		(1,298		)	128,652
Financial institution equity securities	9,822		951		—			10,773
Other equity securities	1,767		13		(148		)	1,632
Total equity securities	11,589		964		(148		)	12,405
Total investment securities AFS	$	138,801	$	3,702	$	(1,446	)	$	141,057

	December 31, 2015
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
(In Thousands)	Cost		Gains		Losses			Value
Available for sale (AFS)
U.S. Government and agency securities	$	3,586	$	—	$	(37	)	$	3,549
Mortgage-backed securities	9,785		284		(60		)	10,009
Asset-backed securities	1,960		—		(20		)	1,940
State and political securities	84,992		1,797		(234		)	86,555
Other debt securities	59,832		185		(2,245		)	57,772
Total debt securities	160,155		2,266		(2,596		)	159,825
Financial institution equity securities	10,397		1,100		(14		)	11,483
Other equity securities	5,214		70		(435		)	4,849
Total equity securities	15,611		1,170		(449		)	16,332
Total investment securities AFS	$	175,766	$	3,436	$	(3,045	)	$	176,157

Schedule of amortized cost and fair values of investment securities

The amortized cost and fair values of trading investment securities at September 30, 2016 and December 31, 2015 are as follows.

	September 30, 2016
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
(In Thousands)	Cost		Gains		Losses		Value
Trading
Financial institution equity securities	$	—	$	—	$	—	$	—
Total trading securities	$	—	$	—	$	—	$	—

	December 31, 2015
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
(In Thousands)	Cost		Gains		Losses			Value
Trading
Financial institution equity securities	$	78	$	—	$	(5	)	$	73
Total trading securities	$	78	$	—	$	(5	)	$	73

Schedule of gross unrealized losses and fair value

The following tables show the Company’s gross unrealized losses and fair value, aggregated by investment category and length of time, that the individual securities have been in a continuous unrealized loss position, at September 30, 2016 and December 31, 2015.

	September 30, 2016
	Less than Twelve Months					Twelve Months or Greater					Total
			Gross					Gross					Gross
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
(In Thousands)	Value		Losses			Value		Losses			Value		Losses
Available for sale (AFS)
U.S. Government and agency securities	$	—	$	—		$	—	$	—		$	—	$	—
Mortgage-backed securities	—		—			3,653		(62		)	3,653		(62		)
Asset-backed securities	—		—			1,538		(5		)	1,538		(5		)
State and political securities	1,001		(3		)	—		—			1,001		(3		)
Other debt securities	11,753		(271		)	12,187		(957		)	23,940		(1,228		)
Total debt securities	12,754		(274		)	17,378		(1,024		)	30,132		(1,298		)
Financial institution equity securities	—		—			—		—			—		—
Other equity securities	780		(20		)	238		(128		)	1,018		(148		)
Total equity securities	780		(20		)	238		(128		)	1,018		(148		)
Total investment securities AFS	$	13,534	$	(294	)	$	17,616	$	(1,152	)	$	31,150	$	(1,446	)

	December 31, 2015
	Less than Twelve Months					Twelve Months or Greater					Total
			Gross					Gross					Gross
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
(In Thousands)	Value		Losses			Value		Losses			Value		Losses
Available for sale (AFS)
U.S. Government and agency securities	$	—	$	—		$	3,549	$	(37	)	$	3,549	$	(37	)
Mortgage-backed securities	6,081		(60		)	—		—			6,081		(60		)
Asset-backed securities	1,626		(16		)	314		(4		)	1,940		(20		)
State and political securities	7,345		(47		)	1,656		(187		)	9,001		(234		)
Other debt securities	24,381		(530		)	22,547		(1,715		)	46,928		(2,245		)
Total debt securities	39,433		(653		)	28,066		(1,943		)	67,499		(2,596		)
Financial institution equity securities	—		—			53		(14		)	53		(14		)
Other equity securities	2,363		(277		)	1,001		(158		)	3,364		(435		)
Total equity securities	2,363		(277		)	1,054		(172		)	3,417		(449		)
Total investment securities AFS	$	41,796	$	(930	)	$	29,120	$	(2,115	)	$	70,916	$	(3,045	)

Schedule of amortized cost and fair value of debt securities by contractual maturity

The amortized cost and fair value of debt securities at September 30, 2016, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities since borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

(In Thousands)	Amortized Cost		Fair Value
Due in one year or less	$	1,354	$	1,354
Due after one year to five years	36,382		36,887
Due after five years to ten years	67,710		67,992
Due after ten years	21,766		22,419
Total	$	127,212	$	128,652

Schedule of gross realized gains and losses

The following table represents gross realized gains and losses within the available for sale portfolio:

	Three Months Ended September 30,				Nine Months Ended September 30,
(In Thousands)	2016		2015		2016		2015
Gross realized gains:
U.S. Government and agency securities	$	11	$	—	$	11	$	—
Mortgage-backed securities	29		—		35		—
State and political securities	146		511		784		1,257
Other debt securities	—		14		258		273
Financial institution equity securities	68		1		150		163
Other equity securities	73		—		217		132
Total gross realized gains	$	327	$	526	$	1,455	$	1,825
Gross realized losses:
U.S. Government and agency securities	$	2	$	—	$	5	$	—
Mortgage-backed securities	—		—		—		—
Asset-backed securities	—		—		—		—
State and political securities	1		—		1		22
Other debt securities	26		—		189		47
Financial institution equity securities	—		—		—		—
Other equity securities	45		—		86		43
Total gross realized losses	$	74	$	—	$	281	$	112

The following table represents gross realized gains and losses within the trading portfolios:

	Three Months Ended September 30,				Nine Months Ended September 30,
(In Thousands)	2016		2015		2016		2015
Gross realized gains:
Financial institution equity securities	—		—		$	6	$	2
Other equity securities	8		2		76		3
Total gross realized gains	$	8	$	2	$	82	$	5
Gross realized losses:
Financial institution equity securities	—		12		$	12	$	15
Other equity securities	—		23		16		27
Total gross realized losses	$	—	$	35	$	28	$	42

XML

Loans (Tables)

9 Months Ended

Sep. 30, 2016

Loans and Leases Receivable Disclosure [Abstract]

Schedule of related aging categories of loans by segment

The following table presents the related aging categories of loans, by segment, as of September 30, 2016 and December 31, 2015:

	September 30, 2016
				Past Due		Past Due 90
				30 To 89		Days Or More		Non-
(In Thousands)	Current			Days		& Still Accruing		Accrual		Total
Commercial, financial, and agricultural	$	155,157		$	233	$	—	$	137	$	155,527
Real estate mortgage:
Residential	551,143			2,752		114		2,603		556,612
Commercial	289,926			987		—		8,676		299,589
Construction	26,927			2		—		—		26,929
Installment loans to individuals	31,648			552		—		—		32,200
	1,054,801			$	4,526	$	114	$	11,416	1,070,857
Net deferred loan fees and discounts	(1,377		)							(1,377		)
Allowance for loan losses	(12,718		)							(12,718		)
Loans, net	$	1,040,706								$	1,056,762

	December 31, 2015
				Past Due		Past Due 90
				30 To 89		Days Or More		Non-
(In Thousands)	Current			Days		& Still Accruing		Accrual		Total
Commercial, financial, and agricultural	$	162,312		$	164	$	—	$	1,596	$	164,072
Real estate mortgage:
Residential	517,753			6,827		714		889		526,183
Commercial	295,784			720		265		5,770		302,539
Construction	26,545			67		—		212		26,824
Installment loans to individuals	26,572			429		—		—		27,001
	1,028,966			$	8,207	$	979	$	8,467	1,046,619
Net deferred loan fees and discounts	(1,412		)							(1,412		)
Allowance for loan losses	(12,044		)							(12,044		)
Loans, net	$	1,015,510								$	1,033,163

Schedule of additional information regarding loans acquired and accounted

The following table presents additional information regarding loans acquired in the Luzerne Bank transaction with specific evidence of deterioration in credit quality:

(In Thousands)	September 30, 2016		December 31, 2015
Outstanding balance	$	429	$	441
Carrying amount	329		341

Schedule of interest income if interest had been recorded based on the original loan agreement terms and rate of interest for non-accrual loans and interest income recognized on a cash basis for non-accrual loans

The following table presents interest income the Banks would have recorded if interest had been recorded based on the original loan agreement terms and rate of interest for non-accrual loans and interest income recognized on a cash basis for non-accrual loans for the three and nine months ended September 30, 2016 and 2015:

	Three Months Ended September 30,
	2016				2015
(In Thousands)	Interest Income That Would Have Been Recorded Based on Original Term and Rate		Interest Income Recorded on a Cash Basis		Interest Income That Would Have Been Recorded Based on Original Term and Rate		Interest Income Recorded on a Cash Basis
Commercial, financial, and agricultural	$	1	$	—	$	3	$	—
Real estate mortgage:
Residential	57		68		12		8
Commercial	109		90		77		12
Construction	—		—		15		17
	$	167	$	158	$	107	$	37

	Nine Months Ended September 30,
	2016				2015
(In Thousands)	Interest Income That Would Have Been Recorded Based on Original Term and Rate		Interest Income Recorded on a Cash Basis		Interest Income That Would Have Been Recorded Based on Original Term and Rate		Interest Income Recorded on a Cash Basis
Commercial, financial, and agricultural	$	5	$	1	$	17	$	8
Real estate mortgage:
Residential	113		95		33		27
Commercial	388		170		248		47
Construction	—				45		53
	$	506	$	266	$	343	$	135

Schedule of recorded investment, unpaid principal balance, and related allowance of impaired loans by segment

The following table presents the recorded investment, unpaid principal balance, and related allowance of impaired loans by segment as of September 30, 2016 and December 31, 2015:

	September 30, 2016
	Recorded		Unpaid Principal		Related
(In Thousands)	Investment		Balance		Allowance
With no related allowance recorded:
Commercial, financial, and agricultural	$	126	$	126	$	—
Real estate mortgage:
Residential	1,789		1,789		—
Commercial	1,920		1,970		—
	3,835		3,885		—
With an allowance recorded:
Commercial, financial, and agricultural	137		137		74
Real estate mortgage:
Residential	2,666		2,766		530
Commercial	10,414		10,414		2,018
	13,217		13,317		2,622
Total:
Commercial, financial, and agricultural	263		263		74
Real estate mortgage:
Residential	4,455		4,555		530
Commercial	12,334		12,384		2,018
	$	17,052	$	17,202	$	2,622

	December 31, 2015
	Recorded		Unpaid Principal		Related
(In Thousands)	Investment		Balance		Allowance
With no related allowance recorded:
Commercial, financial, and agricultural	$	319	$	319	$	—
Real estate mortgage:
Residential	1,142		1,142		—
Commercial	1,735		1,785		—
Construction	212		212		—
	3,408		3,458		—
With an allowance recorded:
Commercial, financial, and agricultural	150		150		75
Real estate mortgage:
Residential	1,573		1,703		376
Commercial	10,752		10,752		1,653
Construction	—		—		—
	12,475		12,605		2,104
Total:
Commercial, financial, and agricultural	469		469		75
Real estate mortgage:
Residential	2,715		2,845		376
Commercial	12,487		12,537		1,653
Construction	212		212		—
	$	15,883	$	16,063	$	2,104

Schedule of average recorded investment in impaired loans and related interest income recognized

The following table presents the average recorded investment in impaired loans and related interest income recognized for the three and nine months ended for September 30, 2016 and 2015:

	Three Months Ended September 30,
	2016						2015
(In Thousands)	Average Investment in Impaired Loans		Interest Income Recognized on an Accrual Basis on Impaired Loans		Interest Income Recognized on a Cash Basis on Impaired Loans		Average Investment in Impaired Loans		Interest Income Recognized on an Accrual Basis on Impaired Loans		Interest Income Recognized on a Cash Basis on Impaired Loans
Commercial, financial, and agricultural	$	346	$	4	$	—	$	699	$	5	$	—
Real estate mortgage:
Residential	2,784		23		41		2,245		17		14
Commercial	12,383		83		16		14,210		90		35
Construction	67		—				906		—		17
	$	15,580	$	110	$	57	$	18,060	$	112	$	66

	Nine Months Ended September 30,
	2016						2015
(In Thousands)	Average Investment in Impaired Loans		Interest Income Recognized on an Accrual Basis on Impaired Loans		Interest Income Recognized on a Cash Basis on Impaired Loans		Average Investment in Impaired Loans		Interest Income Recognized on an Accrual Basis on Impaired Loans		Interest Income Recognized on a Cash Basis on Impaired Loans
Commercial, financial, and agricultural	$	586	$	12	$	1	$	924	$	15	$	10
Real estate mortgage:
Residential	4,539		67		68		1,954		45		31
Commercial	16,988		247		96		14,492		238		71
Construction	208		—				812		—		53
	$	22,321	$	326	$	165	$	18,182	$	298	$	165

Schedule of loan modifications that are considered TDRs

Loan modifications that are considered TDRs completed during the three and nine months ended September 30, 2016 and 2015 and were as follows:

	Three Months Ended September 30,
	2016					2015
(In Thousands, Except Number of Contracts)	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Commercial, financial, and agricultural	—	$	—	$	—	2	$	116	$	116
Real estate mortgage:
Residential	2	580		580		6	641		641
Commercial	—	—		—		4	496		496
Construction	—	—		—		—	—		—
	2	$	580	$	580	12	$	1,253	$	1,253

	Nine Months Ended September 30,
	2016					2015
(In Thousands, Except Number of Contracts)	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Commercial, financial, and agricultural	—	$	—	$	—	4	$	213	$	213
Real estate mortgage:
Residential	4	922		922		12	963		963
Commercial	1	838		838		6	1,013		1,013
Construction	—	—		—		1	398		398
	5	$	1,760	$	1,760	23	$	2,587	$	2,587

Schedule of credit quality categories

The following table presents the credit quality categories identified above as of September 30, 2016 and December 31, 2015:

	September 30, 2016
	Commercial, Financial, and Agricultural		Real Estate Mortgages						Installment Loans to Individuals
(In Thousands)			Residential		Commercial		Construction				Totals
Pass	$	152,425	$	553,115	$	277,903	$	26,929	$	32,200	$	1,042,572
Special Mention	2,739		587		6,063		—		—		9,389
Substandard	363		2,910		15,623		—		—		18,896
	$	155,527	$	556,612	$	299,589	$	26,929	$	32,200	$	1,070,857

	December 31, 2015
	Commercial, Financial, and Agricultural		Real Estate Mortgages						Installment Loans to Individuals
(In Thousands)			Residential		Commercial		Construction				Totals
Pass	$	160,734	$	522,853	$	277,248	$	26,612	$	27,001	$	1,014,448
Special Mention	1,669		823		8,625		—		—		11,117
Substandard	1,669		2,507		16,666		212		—		21,054
	$	164,072	$	526,183	$	302,539	$	26,824	$	27,001	$	1,046,619

Schedule of activity in the allowance

Activity in the allowance is presented for the three and nine months ended September 30, 2016 and 2015:

	Three Months Ended September 30, 2016
	Commercial, Financial, and Agricultural			Real Estate Mortgages								Installment Loans to Individuals
(In Thousands)				Residential			Commercial		Construction						Unallocated		Totals
Beginning Balance	$	1,273		$	5,851		$	4,001	$	143		$	277		$	972	$	12,517
Charge-offs	(18		)	(4		)	—		—			(67		)	—		(89		)
Recoveries	4			8			3		1			16			—		32
Provision	(9		)	(550		)	642		(29		)	111			93		258
Ending Balance	$	1,250		$	5,305		$	4,646	$	115		$	337		$	1,065	$	12,718

	Three Months Ended September 30, 2015
	Commercial, Financial, and Agricultural			Real Estate Mortgages									Installment Loans to Individuals
(In Thousands)				Residential			Commercial			Construction						Unallocated		Totals
Beginning Balance	$	1,286		$	4,334		$	3,869		$	548		$	237		$	991	$	11,265
Charge-offs	—			(29		)	(294		)	—			(47		)	—		(370		)
Recoveries	23			32			—			3			16			—		74
Provision	(1		)	150			305			(187		)	39			214		520
Ending Balance	$	1,308		$	4,487		$	3,880		$	364		$	245		$	1,205	$	11,489

	Nine Months Ended September 30, 2016
	Commercial, Financial, and Agricultural			Real Estate Mortgages								Installment Loans to Individuals
(In Thousands)				Residential			Commercial		Construction						Unallocated		Totals
Beginning Balance	$	1,532		$	5,116		$	4,217	$	160		$	243		$	776	$	12,044
Charge-offs	(167		)	(11		)	—		—			(171		)	—		(349		)
Recoveries	56			14			8		6			73			—		157
Provision	(171		)	186			421		(51		)	192			289		866
Ending Balance	$	1,250		$	5,305		$	4,646	$	115		$	337		$	1,065	$	12,718

	Nine Months Ended September 30, 2015
	Commercial, Financial, and Agricultural			Real Estate Mortgages									Installment Loans to Individuals
(In Thousands)				Residential			Commercial			Construction						Unallocated		Totals
Beginning Balance	$	1,124		$	3,755		$	4,205		$	786		$	245		$	464	$	10,579
Charge-offs	(283		)	(30		)	(743		)	(46		)	(161		)	—		(1,263		)
Recoveries	51			69			169			19			45			—		353
Provision	416			693			249			(395		)	116			741		1,820
Ending Balance	$	1,308		$	4,487		$	3,880		$	364		$	245		$	1,205	$	11,489

Schedule of concentration of loan

The Company has a concentration of the following to gross loans at September 30, 2016 and 2015:

	September 30,
	2016		2015
Owners of residential rental properties	16.64	%	16.44	%
Owners of commercial rental properties	14.11	%	14.17	%

Schedule of allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method

The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment based on impairment method as of September 30, 2016 and December 31, 2015:

	September 30, 2016
	Commercial, Financial, and Agricultural		Real Estate Mortgages						Installment Loans to Individuals		Unallocated
(In Thousands)			Residential		Commercial		Construction						Totals
Allowance for Loan Losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	74	$	530	$	2,018	$	—	$	—	$	—	$	2,622
Collectively evaluated for impairment	1,176		4,775		2,628		115		337		1,065		10,096
Total ending allowance balance	$	1,250	$	5,305	$	4,646	$	115	$	337	$	1,065	$	12,718
Loans:
Individually evaluated for impairment	$	263	$	4,126	$	12,334	$	—	$	—			$	16,723
Loans acquired with deteriorated credit quality	—		329		—		—		—				329
Collectively evaluated for impairment	155,264		552,157		287,255		26,929		32,200				1,053,805
Total ending loans balance	$	155,527	$	556,612	$	299,589	$	26,929	$	32,200			$	1,070,857

	December 31, 2015
	Commercial, Financial, and Agricultural		Real Estate Mortgages						Installment Loans to Individuals		Unallocated
(In Thousands)			Residential		Commercial		Construction						Totals
Allowance for Loan Losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	75	$	376	$	1,653	$	—	$	—	$	—	$	2,104
Collectively evaluated for impairment	1,457		4,740		2,564		160		243		776		9,940
Total ending allowance balance	$	1,532	$	5,116	$	4,217	$	160	$	243	$	776	$	12,044
Loans:
Individually evaluated for impairment	$	469	$	2,374	$	12,487	$	212	$	—			$	15,542
Loans acquired with deteriorated credit quality	—		341		—		—		—				341
Collectively evaluated for impairment	163,603		523,468		290,052		26,612		27,001				1,030,736
Total ending loans balance	$	164,072	$	526,183	$	302,539	$	26,824	$	27,001			$	1,046,619

XML

Net Periodic Benefit Cost-Defined Benefit Plans (Tables)

9 Months Ended

Sep. 30, 2016

Pension and Other Postretirement Benefit Expense [Abstract]

Schedule of components of the net periodic benefit cost of the domestic non-contributory defined benefit plan

The following sets forth the components of the net periodic benefit/cost of the domestic non-contributory defined benefit plan for the three and nine months ended September 30, 2016 and 2015, respectively:

	Three Months Ended September 30,						Nine Months Ended September 30,
(In Thousands)	2016			2015			2016			2015
Service cost	$	17		$	16		$	51		$	48
Interest cost	193			189			579			567
Expected return on plan assets	(251		)	(246		)	(753		)	(737		)
Amortization of net loss	39			39			117			119
Net periodic benefit cost	$	(2	)	$	(2	)	$	(6	)	$	(3	)

XML

Off Balance Sheet Risk (Tables)

9 Months Ended

Sep. 30, 2016

Off Balance Sheet Risk

Schedule of Financial instruments whose contract amounts represent credit risk

Financial instruments whose contract amounts represent credit risk are as follows at September 30, 2016 and December 31, 2015:

(In Thousands)	September 30, 2016		December 31, 2015
Commitments to extend credit	$	254,123	$	241,936
Standby letters of credit	6,607		4,786
Credit exposure from the sale of assets with recourse	9,398		6,523
	$	270,128	$	253,245

XML

Fair Value Measurements (Tables)

9 Months Ended

Sep. 30, 2016

Fair Value Disclosures [Abstract]

Schedule of assets reported on the balance sheet at their fair value on a recurring basis

The following table presents the assets reported on the balance sheet at their fair value on a recurring basis as of September 30, 2016 and December 31, 2015, by level within the fair value hierarchy. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

	September 30, 2016
(In Thousands)	Level I		Level II		Level III		Total
Assets measured on a recurring basis:
Investment securities, available for sale:
U.S. Government and agency securities	$	—	$	—	$	—	$	—
Mortgage-backed securities	—		10,259		—		10,259
Asset-backed securities	—		1,538		—		1,538
State and political securities	—		62,642		—		62,642
Other debt securities	—		54,213		—		54,213
Financial institution equity securities	10,773		—		—		10,773
Other equity securities	1,632		—		—		1,632
Investment securities, trading:
Financial institution equity securities	—		—		—		—
Total assets measured on a recurring basis	$	12,405	$	128,652	$	—	$	141,057

	December 31, 2015
(In Thousands)	Level I		Level II		Level III		Total
Assets measured on a recurring basis:
Investment securities, available for sale:
U.S. Government and agency securities	$	—	$	3,549	$	—	$	3,549
Mortgage-backed securities	—		10,009		—		10,009
Asset-backed securities	—		1,940		—		1,940
State and political securities	—		86,555		—		86,555
Other debt securities	—		57,772		—		57,772
Financial institution equity securities	11,483		—		—		11,483
Other equity securities	4,849		—		—		4,849
Investment securities, trading:
Financial institution equity securities	73		—		—		73
Total assets measured on a recurring basis	$	16,405	$	159,825	$	—	$	176,230

Schedule of assets reported on the consolidated balance sheet at their fair value on a non-recurring basis

The following table presents the assets reported on the Consolidated Balance Sheet at their fair value on a non-recurring basis as of September 30, 2016 and December 31, 2015, by level within the fair value hierarchy. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. 

	September 30, 2016
(In Thousands)	Level I		Level II		Level III		Total
Assets measured on a non-recurring basis:
Impaired loans	$	—	$	—	$	14,430	$	14,430
Other real estate owned	—		—		1,290		1,290
Total assets measured on a non-recurring basis	$	—	$	—	$	15,720	$	15,720

	December 31, 2015
(In Thousands)	Level I		Level II		Level III		Total
Assets measured on a non-recurring basis:
Impaired loans	$	—	$	—	$	13,779	$	13,779
Other real estate owned	—		—		1,696		1,696
Total assets measured on a non-recurring basis	$	—	$	—	$	15,475	$	15,475

Schedule of listing of significant unobservable inputs used in the fair value measurement process for items valued utilizing level III techniques

The following tables present a listing of significant unobservable inputs used in the fair value measurement process for items valued utilizing level III techniques as of September 30, 2016 and December 31, 2015: 

	September 30, 2016
	Quantitative Information About Level III Fair Value Measurements
(In Thousands)	Fair Value		Valuation Technique(s)	Unobservable Inputs	Range	Weighted Average
Impaired loans	$	5,126	Discounted cash flow	Temporary reduction in payment amount	0 to (70)%	(16)%
	9,304		Appraisal of collateral	Appraisal adjustments (1)	0 to (20)%	(13)%
Other real estate owned	$	1,290	Appraisal of collateral (1)

(1) Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses.

	December 31, 2015
	Quantitative Information About Level III Fair Value Measurements
(In Thousands)	Fair Value		Valuation Technique(s)	Unobservable Inputs	Range	Weighted Average
Impaired loans	$	5,696	Discounted cash flow	Temporary reduction in payment amount	0 to (70)%	(17)%
	8,083		Appraisal of collateral	Appraisal adjustments (1)	0 to (20)%	(15)%
Other real estate owned	$	1,696	Appraisal of collateral (1)

(1) Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses.

XML

Fair Value of Financial Instruments (Tables)

9 Months Ended

Sep. 30, 2016

Fair Value Disclosures [Abstract]

Schedule of fair values of financial instruments

The fair values of the Company’s financial instruments are as follows at September 30, 2016 and December 31, 2015:

	Carrying		Fair		Fair Value Measurements at September 30, 2016
(In Thousands)	Value		Value		Level I		Level II		Level III
Financial assets:
Cash and cash equivalents	$	60,181	$	60,181	$	60,181	$	—	$	—
Investment securities:
Available for sale	141,057		141,057		12,405		128,652		—
Trading	—		—		—		—		—
Loans held for sale	2,160		2,160		2,160		—		—
Loans, net	1,056,762		1,085,769		—		—		1,085,769
Bank-owned life insurance	27,176		27,176		27,176		—		—
Accrued interest receivable	3,800		3,800		3,800		—		—
Financial liabilities:
Interest-bearing deposits	$	792,698	$	787,163	$	564,519	$	—	$	222,644
Noninterest-bearing deposits	295,599		295,599		295,599		—		—
Short-term borrowings	11,579		11,579		11,579		—		—
Long-term borrowings	91,025		92,283		—		—		92,658
Accrued interest payable	481		481		481		—		—

	Carrying		Fair		Fair Value Measurements at December 31, 2015
(In Thousands)	Value		Value		Level I		Level II		Level III
Financial assets:
Cash and cash equivalents	$	22,796	$	22,796	$	22,796	$	—	$	—
Investment securities:
Available for sale	176,157		176,157		16,332		159,825		—
Trading	73		73		73		—		—
Loans held for sale	757		757		757		—		—
Loans, net	1,033,163		1,045,140		—		—		1,045,140
Bank-owned life insurance	26,667		26,667		26,667		—		—
Accrued interest receivable	3,686		3,686		3,686		—		—
Financial liabilities:
Interest-bearing deposits	$	751,797	$	729,685	$	509,206	$	—	$	220,479
Noninterest-bearing deposits	280,083		280,083		280,083		—		—
Short-term borrowings	46,638		46,638		46,638		—		—
Long-term borrowings	91,025		91,783		—		—		91,783
Accrued interest payable	426		426		426		—		—

XML

Stock Options Stock Options (Tables)

9 Months Ended

Sep. 30, 2016

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Schedule of Share-based Compensation, Stock Options, Activity

A summary of stock option activity is presented below:

	September 30, 2016				December 31, 2015
	Shares		Weighted Average Exercise Price		Shares		Weighted Average Exercise Price
Outstanding, beginning of year	34,750		$	42.03	—		$	—
Granted	—		—		38,750		42.03
Exercised	—		—		—		—
Forfeited	(3,750	)	42.03		(4,000	)	42.03
Outstanding, end of year	31,000		$	42.03	34,750		$	42.03

XML

Accumulated Other Comprehensive Loss - Schedule of AOCI (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Increase (Decrease} In Accumulated Other Comprehensive Income (Loss), Net Of Tax1 [Roll Forward]
Other comprehensive income before reclassifications	$ (182)	$ 391	$ 2,007	$ (381)
Amounts reclassified from accumulated other comprehensive (loss) income	(141)	(321)	(699)	(1,052)
Total other comprehensive income (loss)	(323)	70	1,308	(1,433)
Net Unrealized Gain on Available for Sale Securities
Increase (Decrease} In Accumulated Other Comprehensive Income (Loss), Net Of Tax1 [Roll Forward]
Beginning balance	1,838	1,374	258	2,930
Other comprehensive income before reclassifications	(182)	391	2,007	(381)
Amounts reclassified from accumulated other comprehensive (loss) income	(167)	(347)	(776)	(1,131)
Total other comprehensive income (loss)	(349)	44	1,231	(1,512)
Ending balance	1,489	1,418	1,489	1,418
Defined Benefit Plan
Increase (Decrease} In Accumulated Other Comprehensive Income (Loss), Net Of Tax1 [Roll Forward]
Beginning balance	(4,006)	(4,544)	(4,057)	(4,597)
Other comprehensive income before reclassifications	0	0	0	0
Amounts reclassified from accumulated other comprehensive (loss) income	26	26	77	79
Total other comprehensive income (loss)	26	26	77	79
Ending balance	(3,980)	(4,518)	(3,980)	(4,518)
AOCI Attributable to Parent
Increase (Decrease} In Accumulated Other Comprehensive Income (Loss), Net Of Tax1 [Roll Forward]
Beginning balance	(2,168)	(3,170)	(3,799)	(1,667)
Total other comprehensive income (loss)			1,308	(1,433)
Ending balance	$ (2,491)	$ (3,100)	$ (2,491)	$ (3,100)

XML

Accumulated Other Comprehensive Loss - Schedule of Reclassifications out of AOCI (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Reclassifications out of accumulated other comprehensive income
Net securities gains, available for sale	$ 253	$ 526	$ 1,174	$ 1,713
Income tax provision	(1,273)	(957)	(3,307)	(2,630)
Salaries and employee benefits	(4,507)	(4,302)	(13,433)	(13,073)
NET INCOME	3,059	3,364	9,529	10,152
Amount Reclassified from Accumulated Other Comprehensive Loss | Net Unrealized Gain on Available for Sale Securities
Reclassifications out of accumulated other comprehensive income
Net securities gains, available for sale	253	526	1,174	1,713
Income tax provision	(86)	(179)	(398)	(582)
NET INCOME	167	347	776	1,131
Amount Reclassified from Accumulated Other Comprehensive Loss | Accumulated Defined Benefit Plans Adjustment, Net Gain (Loss) Attributable to Parent
Reclassifications out of accumulated other comprehensive income
Income tax provision	13	13	40	40
Salaries and employee benefits	(39)	(39)	(117)	(119)
NET INCOME	$ (26)	$ (26)	$ (77)	$ (79)

XML

Per Share Data (Details) - $ / shares	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Earnings Per Share [Abstract]
Convertible securities which would affect denominator in calculating basic and dilutive earnings per share (in shares)			0
Shares outstanding (in shares)	31,000		31,000
Strike price (in dollars per share)	$ 42.03		$ 42.03
Weighted average common shares issued (in shares)	5,006,252	5,003,979	5,005,707	5,003,396
Average treasury stock shares (in shares)	(272,452)	(242,403)	(269,863)	(222,620)
Weighted average common shares and common stock equivalents used to calculate basic and diluted earnings per share (in shares)	4,733,800	4,761,576	4,735,844	4,780,776

XML

Investment Securities - Amortized Cost and Fair Values of Investment Securities Available for Sale (Details) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Available for sale (AFS)
Amortized Cost	$ 138,801	$ 175,766
Gross Unrealized Gains	3,702	3,436
Gross Unrealized Losses	(1,446)	(3,045)
Available for sale	141,057	176,157
Debt securities
Available for sale (AFS)
Amortized Cost	127,212	160,155
Gross Unrealized Gains	2,738	2,266
Gross Unrealized Losses	(1,298)	(2,596)
Available for sale	128,652	159,825
U.S. Government and agency securities
Available for sale (AFS)
Amortized Cost	0	3,586
Gross Unrealized Gains	0	0
Gross Unrealized Losses	0	(37)
Available for sale	0	3,549
Mortgage-backed securities
Available for sale (AFS)
Amortized Cost	10,079	9,785
Gross Unrealized Gains	242	284
Gross Unrealized Losses	(62)	(60)
Available for sale	10,259	10,009
Asset-backed securities
Available for sale (AFS)
Amortized Cost	1,543	1,960
Gross Unrealized Gains	0	0
Gross Unrealized Losses	(5)	(20)
Available for sale	1,538	1,940
State and political securities
Available for sale (AFS)
Amortized Cost	60,838	84,992
Gross Unrealized Gains	1,807	1,797
Gross Unrealized Losses	(3)	(234)
Available for sale	62,642	86,555
Other debt securities
Available for sale (AFS)
Amortized Cost	54,752	59,832
Gross Unrealized Gains	689	185
Gross Unrealized Losses	(1,228)	(2,245)
Available for sale	54,213	57,772
Other equity securities
Available for sale (AFS)
Amortized Cost	11,589	15,611
Gross Unrealized Gains	964	1,170
Gross Unrealized Losses	(148)	(449)
Available for sale	12,405	16,332
Financial institution equity securities
Available for sale (AFS)
Amortized Cost	9,822	10,397
Gross Unrealized Gains	951	1,100
Gross Unrealized Losses	0	(14)
Available for sale	10,773	11,483
Other equity securities
Available for sale (AFS)
Amortized Cost	1,767	5,214
Gross Unrealized Gains	13	70
Gross Unrealized Losses	(148)	(435)
Available for sale	$ 1,632	$ 4,849

XML

Investment Securities - Trading Securities (Details) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Schedule of Trading Securities and Other Trading Assets [Line Items]
Amortized cost	$ 0	$ 78
Trading securities accumulated gross unrealized gain before tax	0	0
Trading securities accumulated gross unrealized loss before tax	0	(5)
Trading securities fair value	0	73
Financial institution equity securities
Schedule of Trading Securities and Other Trading Assets [Line Items]
Amortized cost	0	78
Trading securities accumulated gross unrealized gain before tax	0	0
Trading securities accumulated gross unrealized loss before tax	0	(5)
Trading securities fair value	$ 0	$ 73

XML

Investment Securities - Gross Unrealized Losses and Fair Value by Investment Category (Details) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Investment securities
Fair value, less than twelve months	$ 13,534	$ 41,796
Gross unrealized losses, less than twelve months	(294)	(930)
Fair value, twelve months or greater	17,616	29,120
Gross unrealized losses, twelve months or greater	(1,152)	(2,115)
Fair value, total	31,150	70,916
Gross unrealized losses, total	(1,446)	(3,045)
U.S. Government and agency securities
Investment securities
Fair value, less than twelve months	0	0
Gross unrealized losses, less than twelve months	0	0
Fair value, twelve months or greater	0	3,549
Gross unrealized losses, twelve months or greater	0	(37)
Fair value, total	0	3,549
Gross unrealized losses, total	0	(37)
Mortgage-backed securities
Investment securities
Fair value, less than twelve months	0	6,081
Gross unrealized losses, less than twelve months	0	(60)
Fair value, twelve months or greater	3,653	0
Gross unrealized losses, twelve months or greater	(62)	0
Fair value, total	3,653	6,081
Gross unrealized losses, total	(62)	(60)
Asset-backed securities
Investment securities
Fair value, less than twelve months	0	1,626
Gross unrealized losses, less than twelve months	0	(16)
Fair value, twelve months or greater	1,538	314
Gross unrealized losses, twelve months or greater	(5)	(4)
Fair value, total	1,538	1,940
Gross unrealized losses, total	(5)	(20)
State and political securities
Investment securities
Fair value, less than twelve months	1,001	7,345
Gross unrealized losses, less than twelve months	(3)	(47)
Fair value, twelve months or greater	0	1,656
Gross unrealized losses, twelve months or greater	0	(187)
Fair value, total	1,001	9,001
Gross unrealized losses, total	(3)	(234)
Other debt securities
Investment securities
Fair value, less than twelve months	11,753	24,381
Gross unrealized losses, less than twelve months	(271)	(530)
Fair value, twelve months or greater	12,187	22,547
Gross unrealized losses, twelve months or greater	(957)	(1,715)
Fair value, total	23,940	46,928
Gross unrealized losses, total	(1,228)	(2,245)
Debt securities
Investment securities
Fair value, less than twelve months	12,754	39,433
Gross unrealized losses, less than twelve months	(274)	(653)
Fair value, twelve months or greater	17,378	28,066
Gross unrealized losses, twelve months or greater	(1,024)	(1,943)
Fair value, total	30,132	67,499
Gross unrealized losses, total	(1,298)	(2,596)
Financial institution equity securities
Investment securities
Fair value, less than twelve months	0	0
Gross unrealized losses, less than twelve months	0	0
Fair value, twelve months or greater	0	53
Gross unrealized losses, twelve months or greater	0	(14)
Fair value, total	0	53
Gross unrealized losses, total	0	(14)
Other equity securities
Investment securities
Fair value, less than twelve months	780	2,363
Gross unrealized losses, less than twelve months	(20)	(277)
Fair value, twelve months or greater	238	1,001
Gross unrealized losses, twelve months or greater	(128)	(158)
Fair value, total	1,018	3,364
Gross unrealized losses, total	(148)	(435)
Other equity securities
Investment securities
Fair value, less than twelve months	780	2,363
Gross unrealized losses, less than twelve months	(20)	(277)
Fair value, twelve months or greater	238	1,054
Gross unrealized losses, twelve months or greater	(128)	(172)
Fair value, total	1,018	3,417
Gross unrealized losses, total	$ (148)	$ (449)

XML

Investment Securities - Amortized Cost and Fair Value of Debt Securities (Details) $ in Thousands	Sep. 30, 2016 USD ($)
Amortized Cost
Amortized Cost - Due in one year or less	$ 1,354
Amortized Cost - Due after one year to five years	36,382
Amortized Cost - Due after five years to ten years	67,710
Amortized Cost - Due after ten years	21,766
Amortized Cost - Total	127,212
Fair Value
Fair Value - Due in one year or less	1,354
Fair Value - Due after one year to five years	36,887
Fair Value - Due after five years to ten years	67,992
Fair Value - Due after ten years	22,419
Fair Value - Total	$ 128,652

XML

Investment Securities - Total Gross Proceeds from Sales of Securities (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Gross realized gains and losses
Available-for-sale securities, gross realized gains	$ 327	$ 526	$ 1,455	$ 1,825
Available-for-sale securities, gross realized losses	74	0	281	112
Gross realized gains	8	2	82	5
Gross realized losses	0	35	28	42
U.S. Government and agency securities
Gross realized gains and losses
Available-for-sale securities, gross realized gains	11	0	11	0
Available-for-sale securities, gross realized losses	2	0	5	0
Mortgage-backed securities
Gross realized gains and losses
Available-for-sale securities, gross realized gains	29	0	35	0
Available-for-sale securities, gross realized losses	0	0	0	0
Asset-backed securities
Gross realized gains and losses
Available-for-sale securities, gross realized losses	0	0	0	0
State and political securities
Gross realized gains and losses
Available-for-sale securities, gross realized gains	146	511	784	1,257
Available-for-sale securities, gross realized losses	1	0	1	22
Other debt securities
Gross realized gains and losses
Available-for-sale securities, gross realized gains	0	14	258	273
Available-for-sale securities, gross realized losses	26	0	189	47
Financial institution equity securities
Gross realized gains and losses
Available-for-sale securities, gross realized gains	68	1	150	163
Available-for-sale securities, gross realized losses	0	0	0	0
Gross realized gains	0	0	6	2
Gross realized losses	0	12	12	15
Other equity securities
Gross realized gains and losses
Available-for-sale securities, gross realized gains	73	0	217	132
Available-for-sale securities, gross realized losses	45	0	86	43
Gross realized gains	8	2	76	3
Gross realized losses	$ 0	$ 23	$ 16	$ 27

XML

Investment Securities - Narrative (Details)	3 Months Ended		9 Months Ended
	Sep. 30, 2016 USD ($) security	Sep. 30, 2015 USD ($)	Sep. 30, 2016 USD ($) security	Sep. 30, 2015 USD ($)	Dec. 31, 2015 USD ($)
Investments, Debt and Equity Securities [Abstract]
Net realized and unrealized gain (loss) on trading securities	$ 8,000	$ (33,000)	$ 54,000	$ (37,000)
Available for sale securities in unrealized loss, positions number of positions, less than twelve months | security	13		13
Available for sale securities in unrealized loss, positions number of positions, greater than twelve months | security	11		11
Proceeds from sales of available for sale securities			$ 42,180,000	43,051,000
Impairment charges	$ 0	$ 0	0	$ 0
Investment securities, carrying value	$ 102,872,000		$ 102,872,000		$ 131,089,000

XML

Loans - Additional Information (Details)	3 Months Ended		9 Months Ended		12 Months Ended
	Sep. 30, 2016 USD ($) category component class contract	Mar. 31, 2016 USD ($) contract	Sep. 30, 2016 USD ($) category component class	Sep. 30, 2015 USD ($) contract	Sep. 30, 2016 USD ($) category component class contract	Dec. 31, 2015 USD ($)	Jun. 01, 2013 USD ($)
Accounts, Notes, Loans and Financing Receivable [Line Items]
Impaired financing receivable, unpaid principal balance	$ 17,202,000		$ 17,202,000		$ 17,202,000	$ 16,063,000
Financing receivable individually evaluated for impairment minimum amount			100,000
Individually evaluated for impairment			$ 100,000
Payment delays limit (in days)			90 days
Impaired financing receivable commitment to lend	$ 24,000		$ 24,000		$ 24,000
Reasonable period to classify from troubled debt restructuring non performing loans to performing loans (in months)			6 months
Number of contracts | contract	2				5
Recorded investment	$ 9,219,000		$ 9,219,000		$ 9,219,000	9,647,000
Number of categories considered not criticized and rated as, Pass | category	6		6		6
Minimum period after which loans are considered as substandard (in days)			90 days
The total number of components that represents the allowance for loan losses | component	2		2		2
The number of classes that groups of loans are collectively evaluated for impairment | class	2		2		2
Period considered for quarter moving average which used in calculating historical charge off (in months)			36 months
Luzerne National Bank Corporation
Accounts, Notes, Loans and Financing Receivable [Line Items]
Fair value							$ 878,000
Receivables Acquired with Deteriorated Credit Quality
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing receivable, net	$ 329,000		$ 329,000		$ 329,000	341,000
Financing receivable, allowance for credit losses	0		0		0
Purchased loans | Luzerne National Bank Corporation
Accounts, Notes, Loans and Financing Receivable [Line Items]
Impaired financing receivable, unpaid principal balance							1,211,000
Contractually required payments							1,783,000
Cash flows expected to be collected							941,000
Certain loans acquired in transfer not accounted for as debt securities non accretable yield							842,000
Accretable yield							$ 63,000
Purchased loans | Receivables Acquired with Deteriorated Credit Quality
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing receivable, net	329,000		329,000		329,000
Commercial
Accounts, Notes, Loans and Financing Receivable [Line Items]
Number of contracts | contract		1		1
Recorded investment		$ 239,000		$ 48,000
Residential Real Estate
Accounts, Notes, Loans and Financing Receivable [Line Items]
Number of contracts | contract		3
Recorded investment		$ 173,000
Commercial Loan
Accounts, Notes, Loans and Financing Receivable [Line Items]
Number of contracts | contract		1
Recorded investment		$ 103,000
Residential
Accounts, Notes, Loans and Financing Receivable [Line Items]
Real estate acquired through foreclosure	0		0		0	102,000
Mortgage loans in process of foreclosure, amount	872,000		$ 872,000		872,000	448,000
Real estate mortgage
Accounts, Notes, Loans and Financing Receivable [Line Items]
Number of categories in which real estate loans segmented | category			3
Real estate mortgage | Commercial
Accounts, Notes, Loans and Financing Receivable [Line Items]
Impaired financing receivable, unpaid principal balance	12,384,000		$ 12,384,000		12,384,000	12,537,000
Real estate mortgage | Commercial | Receivables Acquired with Deteriorated Credit Quality
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing receivable, net	0		0		0	0
Real estate mortgage | Residential
Accounts, Notes, Loans and Financing Receivable [Line Items]
Impaired financing receivable, unpaid principal balance	4,555,000		4,555,000		4,555,000	2,845,000
Real estate mortgage | Residential | Receivables Acquired with Deteriorated Credit Quality
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing receivable, net	$ 329,000		$ 329,000		$ 329,000	$ 341,000

XML

Loans - Aging Categories of Loans by Segment (Details) - USD ($) $ in Thousands	Sep. 30, 2016	Jun. 30, 2016	Dec. 31, 2015	Sep. 30, 2015	Jun. 30, 2015	Dec. 31, 2014
Aging categories of loans by segment
Current	$ 1,054,801		$ 1,028,966
Past Due 30 To 89 Days	4,526		8,207
Past Due 90 Days Or More & Still Accruing	114		979
Non-Accrual	11,416		8,467
Total	1,070,857		1,046,619
Net deferred loan fees and discounts	(1,377)		(1,412)
Allowance for loan losses	(12,718)	$ (12,517)	(12,044)	$ (11,489)	$ (11,265)	$ (10,579)
Current loans, net	1,040,706		1,015,510
Loans, net	1,056,762		1,033,163
Commercial, financial, and agricultural
Aging categories of loans by segment
Current	155,157		162,312
Past Due 30 To 89 Days	233		164
Past Due 90 Days Or More & Still Accruing	0		0
Non-Accrual	137		1,596
Total	155,527		164,072
Allowance for loan losses	(1,250)	(1,273)	(1,532)	(1,308)	(1,286)	(1,124)
Real estate mortgage | Residential
Aging categories of loans by segment
Current	551,143		517,753
Past Due 30 To 89 Days	2,752		6,827
Past Due 90 Days Or More & Still Accruing	114		714
Non-Accrual	2,603		889
Total	556,612		526,183
Allowance for loan losses	(5,305)	(5,851)	(5,116)	(4,487)	(4,334)	(3,755)
Real estate mortgage | Commercial
Aging categories of loans by segment
Current	289,926		295,784
Past Due 30 To 89 Days	987		720
Past Due 90 Days Or More & Still Accruing	0		265
Non-Accrual	8,676		5,770
Total	299,589		302,539
Allowance for loan losses	(4,646)	(4,001)	(4,217)	(3,880)	(3,869)	(4,205)
Real estate mortgage | Construction
Aging categories of loans by segment
Current	26,927		26,545
Past Due 30 To 89 Days	2		67
Past Due 90 Days Or More & Still Accruing	0		0
Non-Accrual	0		212
Total	26,929		26,824
Allowance for loan losses	(115)	(143)	(160)	(364)	(548)	(786)
Installment loans to individuals
Aging categories of loans by segment
Current	31,648		26,572
Past Due 30 To 89 Days	552		429
Past Due 90 Days Or More & Still Accruing	0		0
Non-Accrual	0		0
Total	32,200		27,001
Allowance for loan losses	$ (337)	$ (277)	$ (243)	$ (245)	$ (237)	$ (245)

XML

Loans - Loans Acquired in Luzerne Bank Transaction (Details) - Luzerne National Bank Corporation - Purchased loans - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Accounts, Notes, Loans and Financing Receivable [Line Items]
Outstanding balance	$ 429	$ 441
Carrying amount	$ 329	$ 341

XML

Loans - Interest Income (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Accounts, Notes, Loans and Financing Receivable [Line Items]
Interest Income That Would Have Been Recorded Based on Original Term and Rate	$ 167	$ 107	$ 506	$ 343
Interest Income Recorded on a Cash Basis	158	37	266	135
Commercial, financial, and agricultural
Accounts, Notes, Loans and Financing Receivable [Line Items]
Interest Income That Would Have Been Recorded Based on Original Term and Rate	1	3	5	17
Interest Income Recorded on a Cash Basis	0	0	1	8
Real estate mortgage | Residential
Accounts, Notes, Loans and Financing Receivable [Line Items]
Interest Income That Would Have Been Recorded Based on Original Term and Rate	57	12	113	33
Interest Income Recorded on a Cash Basis	68	8	95	27
Real estate mortgage | Commercial
Accounts, Notes, Loans and Financing Receivable [Line Items]
Interest Income That Would Have Been Recorded Based on Original Term and Rate	109	77	388	248
Interest Income Recorded on a Cash Basis	90	12	170	47
Real estate mortgage | Construction
Accounts, Notes, Loans and Financing Receivable [Line Items]
Interest Income That Would Have Been Recorded Based on Original Term and Rate	0	15	0	45
Interest Income Recorded on a Cash Basis	$ 0	$ 17		$ 53

XML

Loans - Recorded Investment, Unpaid Principal Balance, Related Allowance of Impaired Loans (Details) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Credit Quality and Related Allowance for Loan Losses
Recorded Investment, With no related allowance recorded	$ 3,835	$ 3,408
Recorded Investment, With an allowance recorded	13,217	12,475
Recorded Investment	17,052	15,883
Unpaid Principal Balance, With no related allowance recorded	3,885	3,458
Unpaid Principal Balance, With an allowance recorded	13,317	12,605
Unpaid Principal Balance	17,202	16,063
Related Allowance	2,622	2,104
Commercial, financial, and agricultural
Credit Quality and Related Allowance for Loan Losses
Recorded Investment, With no related allowance recorded	126	319
Recorded Investment, With an allowance recorded	137	150
Recorded Investment	263	469
Unpaid Principal Balance, With no related allowance recorded	126	319
Unpaid Principal Balance, With an allowance recorded	137	150
Unpaid Principal Balance	263	469
Related Allowance	74	75
Real estate mortgage | Residential
Credit Quality and Related Allowance for Loan Losses
Recorded Investment, With no related allowance recorded	1,789	1,142
Recorded Investment, With an allowance recorded	2,666	1,573
Recorded Investment	4,455	2,715
Unpaid Principal Balance, With no related allowance recorded	1,789	1,142
Unpaid Principal Balance, With an allowance recorded	2,766	1,703
Unpaid Principal Balance	4,555	2,845
Related Allowance	530	376
Real estate mortgage | Commercial
Credit Quality and Related Allowance for Loan Losses
Recorded Investment, With no related allowance recorded	1,920	1,735
Recorded Investment, With an allowance recorded	10,414	10,752
Recorded Investment	12,334	12,487
Unpaid Principal Balance, With no related allowance recorded	1,970	1,785
Unpaid Principal Balance, With an allowance recorded	10,414	10,752
Unpaid Principal Balance	12,384	12,537
Related Allowance	$ 2,018	1,653
Real estate mortgage | Construction
Credit Quality and Related Allowance for Loan Losses
Recorded Investment, With no related allowance recorded		212
Recorded Investment, With an allowance recorded		0
Recorded Investment		212
Unpaid Principal Balance, With no related allowance recorded		212
Unpaid Principal Balance, With an allowance recorded		0
Unpaid Principal Balance		212
Related Allowance		$ 0

XML

Loans - Average Recorded Investment - Impaired Loans (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Credit Quality and Related Allowance for Loan Losses
Average Investment in Impaired Loans	$ 15,580	$ 18,060	$ 22,321	$ 18,182
Interest Income Recognized on an Accrual Basis on Impaired Loans	110	112	326	298
Interest Income Recognized on a Cash Basis on Impaired Loans	57	66	165	165
Commercial, financial, and agricultural
Credit Quality and Related Allowance for Loan Losses
Average Investment in Impaired Loans	346	699	586	924
Interest Income Recognized on an Accrual Basis on Impaired Loans	4	5	12	15
Interest Income Recognized on a Cash Basis on Impaired Loans	0	0	1	10
Real estate mortgage | Residential
Credit Quality and Related Allowance for Loan Losses
Average Investment in Impaired Loans	2,784	2,245	4,539	1,954
Interest Income Recognized on an Accrual Basis on Impaired Loans	23	17	67	45
Interest Income Recognized on a Cash Basis on Impaired Loans	41	14	68	31
Real estate mortgage | Commercial
Credit Quality and Related Allowance for Loan Losses
Average Investment in Impaired Loans	12,383	14,210	16,988	14,492
Interest Income Recognized on an Accrual Basis on Impaired Loans	83	90	247	238
Interest Income Recognized on a Cash Basis on Impaired Loans	16	35	96	71
Real estate mortgage | Construction
Credit Quality and Related Allowance for Loan Losses
Average Investment in Impaired Loans	67	906	208	812
Interest Income Recognized on an Accrual Basis on Impaired Loans	0	0	0	0
Interest Income Recognized on a Cash Basis on Impaired Loans		$ 17		$ 53

XML

Loans - Loan Modifications (Details) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016 USD ($) contract	Sep. 30, 2015 USD ($) contract	Sep. 30, 2016 USD ($) contract	Sep. 30, 2015 USD ($) contract
Troubled debt restructurings
Number of Contracts | contract	2	12	5	23
Pre-Modification Outstanding Recorded Investment	$ 580	$ 1,253	$ 1,760	$ 2,587
Post-Modification Outstanding Recorded Investment	$ 580	$ 1,253	$ 1,760	$ 2,587
Commercial, financial, and agricultural
Troubled debt restructurings
Number of Contracts | contract	0	2	0	4
Pre-Modification Outstanding Recorded Investment	$ 0	$ 116	$ 0	$ 213
Post-Modification Outstanding Recorded Investment	$ 0	$ 116	$ 0	$ 213
Real estate mortgage | Residential
Troubled debt restructurings
Number of Contracts | contract	2	6	4	12
Pre-Modification Outstanding Recorded Investment	$ 580	$ 641	$ 922	$ 963
Post-Modification Outstanding Recorded Investment	$ 580	$ 641	$ 922	$ 963
Real estate mortgage | Commercial
Troubled debt restructurings
Number of Contracts | contract	0	4	1	6
Pre-Modification Outstanding Recorded Investment	$ 0	$ 496	$ 838	$ 1,013
Post-Modification Outstanding Recorded Investment	$ 0	$ 496	$ 838	$ 1,013
Real estate mortgage | Construction
Troubled debt restructurings
Number of Contracts | contract	0	0	0	1
Pre-Modification Outstanding Recorded Investment	$ 0	$ 0	$ 0	$ 398
Post-Modification Outstanding Recorded Investment	$ 0	$ 0	$ 0	$ 398

XML

Loans - Credit Quality Indicators (Details) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Credit quality categories
Total	$ 1,070,857	$ 1,046,619
Pass
Credit quality categories
Total	1,042,572	1,014,448
Special Mention
Credit quality categories
Total	9,389	11,117
Substandard
Credit quality categories
Total	18,896	21,054
Commercial, financial, and agricultural
Credit quality categories
Total	155,527	164,072
Commercial, financial, and agricultural | Pass
Credit quality categories
Total	152,425	160,734
Commercial, financial, and agricultural | Special Mention
Credit quality categories
Total	2,739	1,669
Commercial, financial, and agricultural | Substandard
Credit quality categories
Total	363	1,669
Installment loans to individuals
Credit quality categories
Total	32,200	27,001
Installment loans to individuals | Pass
Credit quality categories
Total	32,200	27,001
Installment loans to individuals | Special Mention
Credit quality categories
Total	0	0
Installment loans to individuals | Substandard
Credit quality categories
Total	0	0
Residential | Real estate mortgage
Credit quality categories
Total	556,612	526,183
Residential | Real estate mortgage | Pass
Credit quality categories
Total	553,115	522,853
Residential | Real estate mortgage | Special Mention
Credit quality categories
Total	587	823
Residential | Real estate mortgage | Substandard
Credit quality categories
Total	2,910	2,507
Commercial | Real estate mortgage
Credit quality categories
Total	299,589	302,539
Commercial | Real estate mortgage | Pass
Credit quality categories
Total	277,903	277,248
Commercial | Real estate mortgage | Special Mention
Credit quality categories
Total	6,063	8,625
Commercial | Real estate mortgage | Substandard
Credit quality categories
Total	15,623	16,666
Construction | Real estate mortgage
Credit quality categories
Total	26,929	26,824
Construction | Real estate mortgage | Pass
Credit quality categories
Total	26,929	26,612
Construction | Real estate mortgage | Special Mention
Credit quality categories
Total	0	0
Construction | Real estate mortgage | Substandard
Credit quality categories
Total	$ 0	$ 212

XML

Loans - Allowance for Credit Losses on Financing Receivables (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Allowance for Loan Losses:
Beginning Balance	$ 12,517	$ 11,265	$ 12,044	$ 10,579
Charge-offs	(89)	(370)	(349)	(1,263)
Recoveries	32	74	157	353
Provision for loan losses	258	520	866	1,820
Provision	12,718	11,489	12,718	11,489
Commercial, financial, and agricultural
Allowance for Loan Losses:
Beginning Balance	1,273	1,286	1,532	1,124
Charge-offs	(18)	0	(167)	(283)
Recoveries	4	23	56	51
Provision for loan losses	(9)	(1)	(171)	416
Provision	1,250	1,308	1,250	1,308
Real estate mortgage | Residential
Allowance for Loan Losses:
Beginning Balance	5,851	4,334	5,116	3,755
Charge-offs	(4)	(29)	(11)	(30)
Recoveries	8	32	14	69
Provision for loan losses	(550)	150	186	693
Provision	5,305	4,487	5,305	4,487
Real estate mortgage | Commercial
Allowance for Loan Losses:
Beginning Balance	4,001	3,869	4,217	4,205
Charge-offs	0	(294)	0	(743)
Recoveries	3	0	8	169
Provision for loan losses	642	305	421	249
Provision	4,646	3,880	4,646	3,880
Real estate mortgage | Construction
Allowance for Loan Losses:
Beginning Balance	143	548	160	786
Charge-offs	0	0	0	(46)
Recoveries	1	3	6	19
Provision for loan losses	(29)	(187)	(51)	(395)
Provision	115	364	115	364
Installment loans to individuals
Allowance for Loan Losses:
Beginning Balance	277	237	243	245
Charge-offs	(67)	(47)	(171)	(161)
Recoveries	16	16	73	45
Provision for loan losses	111	39	192	116
Provision	337	245	337	245
Unallocated Financing Receivables [Member]
Allowance for Loan Losses:
Beginning Balance	972	991	776	464
Charge-offs	0	0	0	0
Recoveries	0	0	0	0
Provision for loan losses	93	214	289	741
Provision	$ 1,065	$ 1,205	$ 1,065	$ 1,205

XML

Loans - Schedule of Concentration Risk (Details) - Owners of rental properties - Financing receivable	9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015
Residential
Concentration Risk [Line Items]
Concentration of loans (as a percent)	16.64%	16.44%
Commercial
Concentration Risk [Line Items]
Concentration of loans (as a percent)	14.11%	14.17%

XML

Loans - Allowance for Loan Losses (Details) - USD ($) $ in Thousands	Sep. 30, 2016	Jun. 30, 2016	Dec. 31, 2015	Sep. 30, 2015	Jun. 30, 2015	Dec. 31, 2014
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$ 2,622		$ 2,104
Collectively evaluated for impairment	10,096		9,940
Total ending allowance balance	12,718	$ 12,517	12,044	$ 11,489	$ 11,265	$ 10,579
Loans:
Individually evaluated for impairment	16,723		15,542
Collectively evaluated for impairment	1,053,805		1,030,736
Total	1,070,857		1,046,619
Receivables Acquired with Deteriorated Credit Quality
Loans:
Loans acquired with deteriorated credit quality	329		341
Commercial, financial, and agricultural
Ending allowance balance attributable to loans:
Individually evaluated for impairment	74		75
Collectively evaluated for impairment	1,176		1,457
Total ending allowance balance	1,250	1,273	1,532	1,308	1,286	1,124
Loans:
Individually evaluated for impairment	263		469
Collectively evaluated for impairment	155,264		163,603
Total	155,527		164,072
Commercial, financial, and agricultural | Receivables Acquired with Deteriorated Credit Quality
Loans:
Loans acquired with deteriorated credit quality	0		0
Real estate mortgage | Residential
Ending allowance balance attributable to loans:
Individually evaluated for impairment	530		376
Collectively evaluated for impairment	4,775		4,740
Total ending allowance balance	5,305	5,851	5,116	4,487	4,334	3,755
Loans:
Individually evaluated for impairment	4,126		2,374
Collectively evaluated for impairment	552,157		523,468
Total	556,612		526,183
Real estate mortgage | Residential | Receivables Acquired with Deteriorated Credit Quality
Loans:
Loans acquired with deteriorated credit quality	329		341
Real estate mortgage | Commercial
Ending allowance balance attributable to loans:
Individually evaluated for impairment	2,018		1,653
Collectively evaluated for impairment	2,628		2,564
Total ending allowance balance	4,646	4,001	4,217	3,880	3,869	4,205
Loans:
Individually evaluated for impairment	12,334		12,487
Collectively evaluated for impairment	287,255		290,052
Total	299,589		302,539
Real estate mortgage | Commercial | Receivables Acquired with Deteriorated Credit Quality
Loans:
Loans acquired with deteriorated credit quality	0		0
Real estate mortgage | Construction
Ending allowance balance attributable to loans:
Individually evaluated for impairment	0		0
Collectively evaluated for impairment	115		160
Total ending allowance balance	115	143	160	364	548	786
Loans:
Individually evaluated for impairment	0		212
Collectively evaluated for impairment	26,929		26,612
Total	26,929		26,824
Real estate mortgage | Construction | Receivables Acquired with Deteriorated Credit Quality
Loans:
Loans acquired with deteriorated credit quality	0		0
Installment loans to individuals
Ending allowance balance attributable to loans:
Individually evaluated for impairment	0		0
Collectively evaluated for impairment	337		243
Total ending allowance balance	337	277	243	245	237	245
Loans:
Individually evaluated for impairment	0		0
Collectively evaluated for impairment	32,200		27,001
Total	32,200		27,001
Installment loans to individuals | Receivables Acquired with Deteriorated Credit Quality
Loans:
Loans acquired with deteriorated credit quality	0		0
Unallocated Financing Receivables [Member]
Ending allowance balance attributable to loans:
Individually evaluated for impairment	0		0
Collectively evaluated for impairment	1,065		776
Total ending allowance balance	$ 1,065	$ 972	$ 776	$ 1,205	$ 991	$ 464

XML

Net Periodic Benefit Cost-Defined Benefit Plans (Details) - USD ($)	3 Months Ended		9 Months Ended		12 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015	Dec. 31, 2015
Net periodic benefit cost of the domestic non-contributory defined benefit plan
Service cost	$ 17,000	$ 16,000	$ 51,000	$ 48,000
Interest cost	193,000	189,000	579,000	567,000
Expected return on plan assets	(251,000)	(246,000)	(753,000)	(737,000)
Amortization of net loss	39,000	39,000	117,000	119,000
Net periodic benefit cost	(2,000)	$ (2,000)	(6,000)	$ (3,000)
Expected contribution to Pension Plan in 2015 (minimum)					$ 500,000
Employer contributions made to the defined benefit plan			500,000
Anticipated additional contributions anticipated during the remainder of 2015 (at least)	$ 250,000		$ 250,000

XML

Employee Stock Purchase Plan (Details) - Employee Stock - USD ($)	9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015
Employee Stock Purchase Plan
Number of shares allowed to be purchased by employees (in shares)	1,000,000
Purchase price of the shares with respect to market value (as a percent)	95.00%
Maximum percentage of base compensation	15.00%
Maximum market value	$ 12,000
Number of shares issued under the plan (in shares)	1,617	1,723

XML

Off Balance Sheet Risk (Details) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2016	Dec. 31, 2015
Off Balance Sheet Risk
Contract amounts representing credit risk	$ 270,128	$ 253,245
Commitments to extend credit
Off Balance Sheet Risk
Contract amounts representing credit risk	254,123	241,936
Standby letters of credit
Off Balance Sheet Risk
Contract amounts representing credit risk	$ 6,607	4,786
Coverage period for instrument (in years)	1 year
Credit exposure from the sale of assets with recourse
Off Balance Sheet Risk
Contract amounts representing credit risk	$ 9,398	$ 6,523

XML

Fair Value Measurements - Recurring Assets (Details) - Recurring - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Fair Value Measurements
Total assets	$ 141,057	$ 176,230
Level I
Fair Value Measurements
Total assets	12,405	16,405
Level II
Fair Value Measurements
Total assets	128,652	159,825
Level III
Fair Value Measurements
Total assets	0	0
Available-for-sale Securities | U.S. Government and agency securities
Fair Value Measurements
Total assets	0	3,549
Available-for-sale Securities | Mortgage-backed securities
Fair Value Measurements
Total assets	10,259	10,009
Available-for-sale Securities | Asset-backed securities
Fair Value Measurements
Total assets	1,538	1,940
Available-for-sale Securities | State and political securities
Fair Value Measurements
Total assets	62,642	86,555
Available-for-sale Securities | Other debt securities
Fair Value Measurements
Total assets	54,213	57,772
Available-for-sale Securities | Financial institution equity securities
Fair Value Measurements
Total assets	10,773	11,483
Available-for-sale Securities | Other equity securities
Fair Value Measurements
Total assets	1,632	4,849
Available-for-sale Securities | Level I | U.S. Government and agency securities
Fair Value Measurements
Total assets	0	0
Available-for-sale Securities | Level I | Mortgage-backed securities
Fair Value Measurements
Total assets	0	0
Available-for-sale Securities | Level I | Asset-backed securities
Fair Value Measurements
Total assets	0	0
Available-for-sale Securities | Level I | State and political securities
Fair Value Measurements
Total assets	0	0
Available-for-sale Securities | Level I | Other debt securities
Fair Value Measurements
Total assets	0	0
Available-for-sale Securities | Level I | Financial institution equity securities
Fair Value Measurements
Total assets	10,773	11,483
Available-for-sale Securities | Level I | Other equity securities
Fair Value Measurements
Total assets	1,632	4,849
Available-for-sale Securities | Level II | U.S. Government and agency securities
Fair Value Measurements
Total assets	0	3,549
Available-for-sale Securities | Level II | Mortgage-backed securities
Fair Value Measurements
Total assets	10,259	10,009
Available-for-sale Securities | Level II | Asset-backed securities
Fair Value Measurements
Total assets	1,538	1,940
Available-for-sale Securities | Level II | State and political securities
Fair Value Measurements
Total assets	62,642	86,555
Available-for-sale Securities | Level II | Other debt securities
Fair Value Measurements
Total assets	54,213	57,772
Available-for-sale Securities | Level II | Financial institution equity securities
Fair Value Measurements
Total assets	0	0
Available-for-sale Securities | Level II | Other equity securities
Fair Value Measurements
Total assets	0	0
Available-for-sale Securities | Level III | U.S. Government and agency securities
Fair Value Measurements
Total assets	0	0
Available-for-sale Securities | Level III | Mortgage-backed securities
Fair Value Measurements
Total assets	0	0
Available-for-sale Securities | Level III | Asset-backed securities
Fair Value Measurements
Total assets	0	0
Available-for-sale Securities | Level III | State and political securities
Fair Value Measurements
Total assets	0	0
Available-for-sale Securities | Level III | Other debt securities
Fair Value Measurements
Total assets	0	0
Available-for-sale Securities | Level III | Financial institution equity securities
Fair Value Measurements
Total assets	0	0
Available-for-sale Securities | Level III | Other equity securities
Fair Value Measurements
Total assets	0	0
Trading Securities | Financial institution equity securities
Fair Value Measurements
Total assets	0	73
Trading Securities | Level I | Financial institution equity securities
Fair Value Measurements
Total assets	0	73
Trading Securities | Level II | Financial institution equity securities
Fair Value Measurements
Total assets	0	0
Trading Securities | Level III | Financial institution equity securities
Fair Value Measurements
Total assets	$ 0	$ 0

XML

Fair Value Measurements - Non-Recurring Assets (Details) - Fair Value, Measurements, Nonrecurring - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Fair Value Measurements
Fair value	$ 15,720	$ 15,475
Level I
Fair Value Measurements
Fair value	0	0
Level II
Fair Value Measurements
Fair value	0	0
Level III
Fair Value Measurements
Fair value	15,720	15,475
Impaired loans
Fair Value Measurements
Fair value	14,430	13,779
Impaired loans | Level I
Fair Value Measurements
Fair value	0	0
Impaired loans | Level II
Fair Value Measurements
Fair value	0	0
Impaired loans | Level III
Fair Value Measurements
Fair value	14,430	13,779
Other real estate owned
Fair Value Measurements
Fair value	1,290	1,696
Other real estate owned | Level I
Fair Value Measurements
Fair value	0	0
Other real estate owned | Level II
Fair Value Measurements
Fair value	0	0
Other real estate owned | Level III
Fair Value Measurements
Fair value	$ 1,290	$ 1,696

XML

Fair Value Measurements - Significant Unobservable Inputs (Details) - Fair Value, Measurements, Nonrecurring - USD ($) $ in Thousands		9 Months Ended		12 Months Ended
		Sep. 30, 2016		Dec. 31, 2015
Listing of significant unobservable inputs used in the fair value measurement process for items valued utilizing level III techniques
Fair value		$ 15,720		$ 15,475
Impaired loans
Listing of significant unobservable inputs used in the fair value measurement process for items valued utilizing level III techniques
Fair value		14,430		13,779
Other real estate owned
Listing of significant unobservable inputs used in the fair value measurement process for items valued utilizing level III techniques
Fair value		1,290		1,696
Level III
Listing of significant unobservable inputs used in the fair value measurement process for items valued utilizing level III techniques
Fair value		15,720		15,475
Level III | Impaired loans
Listing of significant unobservable inputs used in the fair value measurement process for items valued utilizing level III techniques
Fair value		14,430		13,779
Level III | Impaired loans | Discounted cash flow
Listing of significant unobservable inputs used in the fair value measurement process for items valued utilizing level III techniques
Fair value		$ 5,126		$ 5,696
Level III | Impaired loans | Discounted cash flow | Minimum
Listing of significant unobservable inputs used in the fair value measurement process for items valued utilizing level III techniques
Temporary reduction in payment amount (as a percent)		0.00%		0.00%
Level III | Impaired loans | Discounted cash flow | Maximum
Listing of significant unobservable inputs used in the fair value measurement process for items valued utilizing level III techniques
Temporary reduction in payment amount (as a percent)		(70.00%)		(70.00%)
Level III | Impaired loans | Discounted cash flow | Weighted Average
Listing of significant unobservable inputs used in the fair value measurement process for items valued utilizing level III techniques
Temporary reduction in payment amount (as a percent)		(16.00%)		(17.00%)
Level III | Impaired loans | Appraisal of collateral
Listing of significant unobservable inputs used in the fair value measurement process for items valued utilizing level III techniques
Fair value		$ 9,304		$ 8,083
Level III | Impaired loans | Appraisal of collateral | Minimum
Listing of significant unobservable inputs used in the fair value measurement process for items valued utilizing level III techniques
Appraisal adjustments (as a percent)	[1]	0.00%		0.00%
Level III | Impaired loans | Appraisal of collateral | Maximum
Listing of significant unobservable inputs used in the fair value measurement process for items valued utilizing level III techniques
Appraisal adjustments (as a percent)	[1]	(20.00%)		(20.00%)
Level III | Impaired loans | Appraisal of collateral | Weighted Average
Listing of significant unobservable inputs used in the fair value measurement process for items valued utilizing level III techniques
Appraisal adjustments (as a percent)		(13.00%)	[2]	(15.00%)	[1]
Level III | Other real estate owned
Listing of significant unobservable inputs used in the fair value measurement process for items valued utilizing level III techniques
Fair value		$ 1,290		$ 1,696
Level III | Other real estate owned | Appraisal of collateral
Listing of significant unobservable inputs used in the fair value measurement process for items valued utilizing level III techniques
Fair value		$ 1,290	[2]	$ 1,696	[1]

[1] Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses.

[2] Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses.

XML

Fair Value of Financial Instruments (Details) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Investment securities:
Available for sale	$ 141,057	$ 176,157
Investment securities, trading	0	73
Bank-owned life insurance	27,176	26,667
Accrued interest receivable	3,800	3,686
Financial liabilities:
Interest-bearing deposits	792,698	751,797
Noninterest-bearing deposits	295,599	280,083
Level I
Financial assets:
Cash and cash equivalents	60,181	22,796
Investment securities:
Available for sale	12,405	16,332
Investment securities, trading	0	73
Loans held for sale	2,160	757
Loans, net	0	0
Bank-owned life insurance	27,176	26,667
Accrued interest receivable	3,800	3,686
Financial liabilities:
Interest-bearing deposits	564,519	509,206
Noninterest-bearing deposits	295,599	280,083
Short-term borrowings	11,579	46,638
Long-term borrowings	0	0
Accrued interest payable	481	426
Level II
Financial assets:
Cash and cash equivalents	0	0
Investment securities:
Available for sale	128,652	159,825
Investment securities, trading	0	0
Loans held for sale	0	0
Loans, net	0	0
Bank-owned life insurance	0	0
Accrued interest receivable	0	0
Financial liabilities:
Interest-bearing deposits	0	0
Noninterest-bearing deposits	0	0
Short-term borrowings	0	0
Long-term borrowings	0	0
Accrued interest payable	0	0
Level III
Financial assets:
Cash and cash equivalents	0	0
Investment securities:
Available for sale	0	0
Investment securities, trading	0	0
Loans held for sale	0	0
Loans, net	1,085,769	1,045,140
Bank-owned life insurance	0	0
Accrued interest receivable	0	0
Financial liabilities:
Interest-bearing deposits	222,644	220,479
Noninterest-bearing deposits	0	0
Short-term borrowings	0	0
Long-term borrowings	92,658	91,783
Accrued interest payable	0	0
Carrying Value
Financial assets:
Cash and cash equivalents	60,181	22,796
Investment securities:
Available for sale	141,057	176,157
Investment securities, trading	0	73
Loans held for sale	2,160	757
Loans, net	1,056,762	1,033,163
Bank-owned life insurance	27,176	26,667
Accrued interest receivable	3,800	3,686
Financial liabilities:
Interest-bearing deposits	792,698	751,797
Noninterest-bearing deposits	295,599	280,083
Short-term borrowings	11,579	46,638
Long-term borrowings	91,025	91,025
Accrued interest payable	481	426
Fair Value
Financial assets:
Cash and cash equivalents	60,181	22,796
Investment securities:
Available for sale	141,057	176,157
Investment securities, trading	0	73
Loans held for sale	2,160	757
Loans, net	1,085,769	1,045,140
Bank-owned life insurance	27,176	26,667
Accrued interest receivable	3,800	3,686
Financial liabilities:
Interest-bearing deposits	787,163	729,685
Noninterest-bearing deposits	295,599	280,083
Short-term borrowings	11,579	46,638
Long-term borrowings	92,283	91,783
Accrued interest payable	$ 481	$ 426

XML

Stock Options - Additional Information (Details) - $ / shares		9 Months Ended	12 Months Ended
	Aug. 27, 2015	Sep. 30, 2016	Dec. 31, 2015
Employee Stock Purchase Plan
Granted (in shares)		0	38,750
Granted (in dollars per share)		$ 0.00	$ 42.03
Employee Stock Option
Employee Stock Purchase Plan
Granted (in shares)	38,750
Granted (in dollars per share)	$ 42.03
Exercisable period (in years)	5 years
Expiration period (in years)	10 years

XML

Stock Options - Schedule of Options Outstanding (Details) - $ / shares	9 Months Ended	12 Months Ended
	Sep. 30, 2016	Dec. 31, 2015	Dec. 31, 2014
Options, Outstanding
Outstanding, beginning of year (in shares)	34,750	0
Granted (in shares)	0	38,750
Exercised (in shares)	0	0
Forfeited (in shares)	(3,750)	(4,000)
Outstanding, end of year (in shares)	31,000	34,750
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Exercise Price [Abstract]
Outstanding, weighted average exercise price (in dollars per share)	$ 42.03	$ 42.03	$ 0.00
Granted (in dollars per share)	0.00	42.03
Exercised (in dollars per share)	0.00	0.00
Forfeited (in dollars per share)	$ 42.03	$ 42.03

XML

Reclassification of Comparative Amounts (Details)	9 Months Ended
	Sep. 30, 2016 USD ($)
Reclassification of Comparative Amounts
Effect of reclassification adjustment on net income or shareholders' equity	$ 0